- Which of the following is NOT one of the three primary financial statements organizations use to report to external decision makers?
| a. |
statement of cash flows |
| b. |
balance sheet |
| c. |
gross profit statement |
| d. |
income statement |
- The primary difference between a product cost and a period cost is that
| a. |
product costs are associated with specific goods and period costs are not |
| b. |
product costs are incurred by manufacturers and period costs by service providers |
| c. |
only product costs are recorded as expenses |
| d. |
period costs become part of cost of goods sold but product costs do not |
- Which of the following is NOT reported on the income statement?
| a. |
income taxes |
| b. |
non-operating items |
| c. |
accumulated depreciation |
| d. |
earnings per share |
- Which of the following is a false statement?
| a. |
operating income is another term for gross profit |
| b. |
operating expense on an income statement is listed after cost of goods sold |
| c. |
some revenues and expenses on the income statement may not directly relate to a company’s primary operations |
| d. |
income taxes are generally reported after other revenues and expenses on an income statement |
- The term “depletion” applies to
| a. |
equipment |
| b. |
inventory |
| c. |
buildings |
| d. |
natural resources |
- Which of the following financial statements reports information about events that occurred during a certain period of time?
Balance Sheet Income Statement
| a. |
Yes Yes |
| b. |
Yes No |
| c. |
No Yes |
| d. |
No No |
- Which of the following financial statements reports the resources available for use in the transformation process as well as any claims to those resources at a point in time?
| a. |
the income statement |
| b. |
the cash-flow statement |
| c. |
the balance sheet |
| d. |
the annual report |
- A similarity between the balance sheet and the statement of stockholders’ equity is that both
| a. |
are less important than the income statement |
| b. |
are prepared before the income statement is prepared |
| c. |
report activity over a period of time |
| d. |
report retained earnings |
- The term “working capital” describes the
| a. |
amount of equity (ownership) capital in the firm |
| b. |
portion of capital actively employed in generating revenues |
| c. |
amount of debt (borrowed) capital in the firm |
| d. |
excess of current resources over current obligations |
- When evaluating the balance sheet, liquidity refers to the
| a. |
amount of equity a company has compared to liabilities |
| b. |
ability of a firm to meet short-term obligations |
| c. |
long-run financial health of the enterprise |
| d. |
dividend paying capability of the company |
- The operating cycle of most businesses is
| a. |
greater than one year |
| b. |
the time necessary to acquire a machine, use it, sell it, and collect the resulting cash |
| c. |
the time required to manufacture and sell a product |
| d. |
less than 12 months |
- The relationship between financial statements in which account balances on one statement help explain those on another statement is known as
| a. |
accrual basis accounting |
| b. |
balancing |
| c. |
value creation |
| d. |
articulation |
- The way a company accounts for human resources is an example of which of the following financial statement limitations?
| a. |
use of estimates and allocations |
| b. |
use of historical costs |
| c. |
omission of transactions |
| d. |
omission of resources and costs |
- Which of the following accounts might require the use of estimates and allocations in order to determine an amount of an expense to be recorded?
| a. |
accounts receivable |
| b. |
depreciation |
| c. |
cash |
| d. |
sales |
- Sonny’s Liquors, Inc. had the following cash flows during March:
| Paid for inventory |
$ 20,000 |
| Paid wages to employees |
40,000 |
| Received from cash sales |
100,000 |
| Paid for equipment |
60,000 |
| Received a loan |
70,000 |
What was the cash flow from financing activities?
| a. |
$70,000 inflow |
| b. |
$80,000 outflow |
| c. |
$120,000 outflow |
| d. |
$60,000 outflow |
- The primary difference between the cash flows statement and all other primary external financial statements is that the cash flows statement is
| a. |
not an accrual based statement and all others are |
| b. |
not prepared unless the firm is a manufacturer |
| c. |
an optional statement in the external reporting package |
| d. |
prepared before the end of the year and not after |
- Differences between the direct format and indirect format of the statement of cash flows are found in which section(s) of the statement?
| a. |
financing activities |
| b. |
investing activities |
| c. |
operating activities |
| d. |
all three sections (operating, financing, investing) |
- Which one of the following is a financing activity?
| a. |
sale of worn out factory equipment |
| b. |
sale of inventory |
| c. |
collection of an account receivable |
| d. |
sale of bonds payable |
- A statement of cash flows has been prepared. The sum of the three major components (operating activities, investing activities, financing activities) will add up to an amount equal to
| a. |
the ending cash balance reported on the balance sheet |
| b. |
net income for the period on the accrual basis |
| c. |
the ending amount of working capital |
| d. |
the net change in the cash account during the year |
- Bombay Imports reported a substantial net income for the most recent accounting period. Its net cash flows for the same period
| a. |
must have been positive |
| b. |
must have been negative |
| c. |
could have been either positive or negative |
| d. |
cannot be measured |
- When preparing the operating activities section of the statement of cash flows under the indirect method, which of the following is an addition to net income?
Amortization Increase in current
Expense asset accounts
| a. |
Yes Yes |
| b. |
Yes No |
| c. |
No Yes |
| d. |
No No |
- Diversified Ventures reported the following information for fiscal year 2007. Determine cash flow from operations.
| Net income |
$1,000,000 |
| Net increase in current asset accounts |
300,000 |
| Net decrease in current liability accounts |
120,000 |
| Amortization expense |
80,000 |
| Depreciation expense |
40,000 |
| a. |
$700,000 |
| b. |
$1,060,000 |
| c. |
$1,180,000 |
| d. |
$580,000 |
- Sales for the year totaled $85,000 with $70,000 of it sold on account. Beginning accounts receivable was $9,000 while ending accounts receivable totaled $12,000. What amounts of revenue and cash flow will be reported for the period as a result of these facts?
Revenue Cash Flow
| a. |
$70,000 $82,000 |
| b. |
$85,000 $88,000 |
| c. |
$70,000 $88,000 |
| d. |
$85,000 $82,000 |
- Dairy Delights reported the following information for its most recent fiscal year. Accounts payable increased $3,900; inventory decreased $2,700; net income was $6,600; and depreciation expense was $1,500. On the statement of cash flows, net cash flow from operating activities should be reported as
| a. |
$1,500 |
| b. |
$6,900 |
| c. |
$9,300 |
| d. |
$14,700 |
- Which of the following is a TRUE statement regarding the operating activities section of the statement of cash flows when the indirect format is used?
| a. |
it explains the relationship between cash flows for a period and the results of operations reported on the income statement |
| b. |
it is designed to report to the reader what events caused cash to increase during the period and what events caused cash to decrease during the period |
| c. |
it results in a slightly higher amount of cash from operations being reported because depreciation expense is included |
| d. |
it is easier to understand and interpret correctly than when it is prepared using the direct method |
- Which of the following has a different effect on net income than it does on cash flow?
| a. |
payment for wages |
| b. |
cash sale to customer |
| c. |
amortization of a patent |
| d. |
payment of office rent |
- Use the following information to calculate the cash from operating activities:
| Net income |
$3,308 |
| Depreciation expense |
712 |
| Increase in accounts receivable |
500 |
| Decrease in merchandise |
640 |
| Increase in supplies |
86 |
| Increase in accounts payable |
132 |
| Decrease in wages payable |
75 |
| Increase in interest payable |
56 |
| Decrease in income tax payable |
140 |
| a. |
$4,047 |
| b. |
$3,991 |
| c. |
$3,335 |
| d. |
$2,569 |
- Cash outflow from financing activities may indicate that
| a. |
the company has a lot of good investing opportunities |
| b. |
the company is performing well but does not have a lot of good investing opportunities |
| c. |
the company has no excess cash |
| d. |
the company cannot create enough cash from its operations to meet ongoing needs |
- Which pattern of cash flows would indicate that the company is experiencing serious financial problems?
operating investing financing
| a. |
+ – + |
| b. |
– + + |
| c. |
+ – – |
| d. |
+ + – |
- Which of the following is a false statement?
| a. |
a company can have a net income for the period but have a net decrease in cash from operations |
| b. |
a company that consistently reports net cash inflow from investing activities has many growth opportunities |
| c. |
a company that reports a net loss for the period may not necessarily report a net cash outflow from operating activities |
| d. |
depreciation expense is added back to net income to arrive at cash from operations |
- The SEC is responsible for overseeing
| a. |
external financial reporting by publicly traded companies |
| b. |
financial reporting by government agencies |
| c. |
the audits of the Fortune 500 companies |
| d. |
the civil and criminal prosecution of government officials |
- Accounting regulations protect the interests of external decisions makers by:
| a. |
publishing books on regulatory procedures |
| b. |
allowing them access to the company’s books and records |
| c. |
making sure that companies pay taxes |
| d. |
requiring companies to follow reporting standards |
- The Financial Accounting Standards Board
| a. |
is a private organization that currently sets accounting standards for businesses in the United States |
| b. |
is a governmental organization that issues Statements of Accounting Standards |
| c. |
sets accounting standards for both businesses and state and local governments |
| d. |
was established by the U.S. Congress |
- A(n) ________ provides a systematic investigation of a company’s financial records and procedures
| a. |
inquiry |
| b. |
internal control system |
| c. |
compilation |
| d. |
audit |
- Attestation occurs when:
| a. |
the company issues stock |
| b. |
an auditor affirms the fairness of presentation of the financial statements |
| c. |
managers become certified |
| d. |
a contract is signed |
- Internal controls are important in a company to ensure:
| a. |
longevity as a going concern |
| b. |
proper distribution of dividends |
| c. |
that financial data is accurate |
| d. |
increase in assets |
- The purpose of internal controls is to
| a. |
ensure that production of goods and services will meet market demand |
| b. |
protect assets and ensure the accuracy of accounting information |
| c. |
ensure that tax returns will be filed in a timely manner |
| d. |
ensure that there will be no fraud or errors in the accounting system |
- The establishment of an environment of ethical conduct within a business can accomplished by:
| a. |
managers setting the tone by acting with integrity |
| b. |
establishing an audit committee |
| c. |
periodic performance reviews of all employees |
| d. |
all of the above answers are correct |
- The par value of stock is
| a. |
the same as market value |
| b. |
always greater than market value |
| c. |
no longer required |
| d. |
the nominal value assigned to each share by a corporation |
- Treasury stock
| a. |
is issued by a firm to finance expansion of operations |
| b. |
is more similar to preferred stock than to common stock |
| c. |
has been issued, but is not currently outstanding |
| d. |
will result in an increase stockholders’ equity |
- Dividends on common stock are
| a. |
recorded as expense when paid |
| b. |
recorded as expense when declared |
| c. |
recorded as expense at year end |
| d. |
recorded as a reduction of retained earnings |
- The Sleek Guitar Company declared a 10% stock dividend (10,000 shares to be distributed when the par value was $10 per share, and the market value was $30 per share). When this transaction is entered into the accounting system, how will it affect total stockholders’ equity?
| a. |
no effect |
| b. |
$100,000 increase |
| c. |
$100,000 decrease |
| d. |
$300,000 increase |
| e. |
$300,000 decrease |
- Winters Company has announced that it will distribute a 15% common stock dividend on its $10 par value common stock that is currently selling for $75 per share. Upon receiving the new shares, a common stockholder will have increased his/her ownership value by
| a. |
zero |
| b. |
15% of the par value of shares owned before the stock dividend |
| c. |
15% of the market value of the shares owned before the stock dividend |
| d. |
15% of the difference between par value and market value of the shares owned before the stock dividend |
- Fletcher Company commenced business on January 1, 2007 but has never declared or paid any dividends. The following are account balances after closing the books at December 31, 2009:
| Cash |
$18,000 |
| Common stock, $1 par |
1,000 |
| Paid-in capital in excess of par value |
49,000 |
| Preferred stock, $100 par, 10%, cumulative |
50,000 |
| Retained earnings |
75,000 |
Net income during 2009 totaled $30,000 and the Board of Directors wishes to distribute a total of $15,000 in cash dividends. The common stockholders will receive what amount per share?
| a. |
$15 |
| b. |
$11 |
| c. |
$ 3 |
| d. |
$ 0 |
- The term “cumulative” is used to describe a feature of which of the following?
| a. |
common stock |
| b. |
preferred stock |
| c. |
stock splits |
| d. |
stock dividends |
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