ch1 Student: ___________________________________________________________________________
1.
A business business entity's entity's accountin accounting g system creates creates financial financial accounting accounting reports reports which are are provided provided to external external decision makers. True
2.
Business Business managers managers utili utilize ze managerial managerial accounti accounting ng reports reports to plan plan and manage manage the daily daily operati operations. ons. True
3.
False
A decision decision maker maker who wants wants to to understand understand a company's company's financi financial al statements statements must careful carefully ly read the the notes to the financial statements because the notes no tes provide useful supplemental information. True
9.
False
The accountin accounting g equation equation states states that that Assets Assets = Liabilit Liabilities ies + Stockholders Stockholders'' Equity. Equity. True
8.
False
The income income statement statement is a measure measure of an entity's entity's economic economic performance performance for for a period period of time. time. True
7.
False
Total assets assets are are $37,500, total total liabilit liabilities ies are $20,000 $20,000 and contrib contributed uted capital capital is $10,000; $10,000; therefo therefore, re, retained retained earnings are $7,500. True
6.
False
Revenue is is recognized recognized within within the the income income statement statement during during the the period period in which which cash is is collected. collected. True
5.
False
The balance balance sheet sheet includes includes assets, assets, liabilitie liabilitiess and stockhold stockholders' ers' equity equity as of a point point in time. time. True
4.
False
False
The financial financial statement statement that shows shows an entity's entity's economic economic resource resourcess and claims claims against against those those resources resources is the the balance sheet. True
False
10. Assets Assets are initially initially recorded recorded on the balance sheet at the total cost paid paid to acquire the asset. asset. True
False
11. Stockholders Stockholders'' equity on the balance sheet consists consists of contributed contributed capital and retained earnings. earnings. True
False
12. The amount of cash paid by a business business for dividends dividends would be reported reported on the statement of cash cash flows as an operating activity. True
False
13. A company's retained retained earnings earnings balance increased increased $50,000 last year; therefore, therefore, net income income last year must have been $50,000. True
False
14. The statement statement of retained retained earnings explains explains the change in the retained retained earnings earnings balance caused caused by stockholder investments and dividend declarations. True
False
15. The Financial Financial Accounting Accounting Standards Standards Board (FASB) (FASB) has been given the authority authority by the Securities Securities and Exchange Commission (SEC) to develop generally accepted accounting principles. True
False
16. In the United States, States, the Securities Securities and Exchange Exchange Commission Commission (SEC) is consideri considering ng the adoption of International Financial Reporting Standards (IFRS). True
False
17. The primary responsibility for the content of the financial statements lies lies with the external auditor. True
False
18. An audit examines examines the financial financial statements statements provided provided by management management to ensure that they they represent represent what they claim and to make sure that they are in compliance with Generally Accepted Accounting Principles. True
False
19. The auditor can be held liable for malpractice in situations situations where the investors suffered losses while relying on the financial statements. True
False
20. One of the advantages advantages of a corporation corporation when compared to a partnership partnership is the limited limited liability liability of the owners. True
False
21. Which of the the following following describes describes the primary primary objective objective of the balance balance sheet? sheet? A. B. C. D.
To measure the net income of a business up to a particular point in time. To report the difference between cash inflows and cash outflows for the period. To report the financial position of the reporting entity at a particular point in time. To report the market value of assets, liabilities and stockholders' equity at a particular point in in time.
22. During During the fiscal year year ended 2010, a company company had revenues revenues of $400,000, $400,000, expenses expenses of $280,000, $280,000, and an income tax rate of 30 percent. What was the company's 2010 net income? A. B. C. D.
$120,000 $36,000 $84,000 $400,000
23. Atlantic Corporation reported reported the following amounts at the end of the first first year of operations: contributed capital $200,000; sales revenue $800,000; total assets $600,000; dividends declared $40,000; and total liabilities $320,000. What are Atlantics' retained earnings at the end of the year and how much expenses were incurred during the year? A. B. C. D.
Retained earnings are $80,000 and expenses incurred totaled $680,000. Retained earnings are $80,000 and expenses incurred totaled $720,000. Retained earnings are $280,000 and expenses incurred totaled $480,000. Retained earnings are $280,000 and expenses incurred totaled $520,000.
24. Which of the the following following best best describes describes the the balance sheet? sheet? A. B. C. D.
It includes a listing of assets at their market market values. It includes a listing of assets, liabilities, liabilities, and stockholders' equity at their market values. It provides information pertaining to a company's assets and the providers of the assets. It provides information pertaining to a company's liabilities for a period of time.
25. Which of of the followi following ng statements statements is correct? correct? A. Assets on the balance sheet include include retained earnings. B. Retained earnings include contributed capital. C. The balance sheet equation states that assets assets equal contributed capital. D. A corporation's net income does not necessarily equal its cash flow from operations. 26. Which of the following following correctly correctly describes describes the various various financial financial statements statements?? A. B. C. D.
An income statement covers a period period of time. The cash flow statement is a point in time financial statement. The balance sheet is a period of time financial statement. The statement of retained earnings is a point in time financial statement.
27. Which of the the following following accounts would would not be reported reported on the balance balance sheet? A. Retained earnings B. Inventory C. Accounts payable D. Dividends 28. Which of the the following following would not be found found on the statement statement of cash flows? flows? A. B. C. D.
Cost flow from manufacturing activities Cash flow from operating activities activities Cash flow from investing activities Cash flow from financing financing activities
29. Which of the the following following accounts is is not a liability liability on the balance balance sheet? A. Retained earnings B. Notes payable C. Taxes payable D. Interest payable 30. What financial financial statement statement would would you look at to determine the dividends dividends declared declared by a business? business? A. Income statement B. Statement of retained earnings C. Statement of cash flows D. Balance sheet 31. Which financial statement statement would you utilize utilize to determine whether a company will be able to pay liabilities which are due in 30 days? A. Income statement B. Balance sheet C. Statement of retained earnings D. Statement of cash flows 32. Which of the the following following is considered considered to be an expense expense on the income statement statement?? A. Accounts payable B. Notes payable C. Wages payable D. Cost of goods sold 33. Which of of the followi following ng best describes describes assets? assets? A. They are equal to liabilities minus stockholders' equity. B. They are considered to be the economic resources of the business. C. They are all reported on the balance sheet at their current market value. D. They equal contributed capital. 34. Which of the the following following accounts would would be reported reported as assets assets on the balance balance sheet? A. Cash, accounts payable, and notes payable. B. Cash, retained earnings, and accounts receivable. C. Cash, accounts receivable, and inventory. D. Inventories, property and equipment, and contributed capital. capital. 35. Which of the the following following statements statements describes describes the the balance sheet? sheet? A. B. C. D.
It reports a company's revenues revenues and expenses. Assets are generally reported on the balance sheet at their historical cost. Stockholders' equity includes only retained earnings. It reports a company's cash flow from operations.
36. Which of the following following best describes describes liabili liabilities ties and stockholder stockholders' s' equity? A. B. C. D.
They are the sources of financing financing an entity's assets. They are the economic resources used by a business business entity. They are reported on the income statement. They both increase when assets increase. increase.
37. Which of the the following following equations equations is is the balance balance sheet equatio equation? n? A. B. C. D.
Assets + Liabilities Liabilities = Stockholders' Equity Assets + Stockholder's Equity = Liabilities Assets = Liabilities Liabilities + Stockholders' Equity Assets = Liabilities Liabilities + Contributed Capital
38. Willie Company's retained earnings increased $20,000 during 2010. What was Willie's 2010 net income income or loss given that Willie declared $25,000 of dividends during 2010? A. Net income was $5,000. B. Net income was $45,000. C. Net loss was $45,000. D. Net loss was $5,000. 39. Which of the following following are the components components of stockholde stockholders' rs' equity equity on the balance sheet? A. Contributed capital and long-term liabilities. liabilities. B. Contributed capital and property, plant, and equipment. C. Retained earnings and notes payable. D. Contributed capital and retained earnings. 40. Which financial financial statement statement would would you use to determine determine a company's earnings earnings performance performance during during an accounting period? A. Balance sheet B. Statement of retained earnings C. Income statement D. Statement of cash flows 41. Which of the the following following equations equations best describes describes the the income statement statement?? A. Assets - Liabilities Liabilities = Stockholders' Equity B. Net income = Revenues + Expenses C. Net income = Revenues - Expenses. D. Retained earnings = Net Income + Dividends
42. Lena Company Company has provided provided the following following data (ignore (ignore income income taxes): taxes): 2010 revenues were $99,000. 2010 expenses were $47,800. Dividends declared and paid during 2010 totaled $9,500. Total assets on December 31, 2010 were $177,000. Total liabilities on December 31, 2010 were $89,000. Contributed capital on December 31, 2010 was $28,000. Which of the following is correct? A. 2010 net income was $41,700. B. Total stockholders' equity on December 31, 2010 was $236,000. C. Retained earnings on December 31, 2010 were $60,000. D. Retained earnings on December 31, 2010 were $41,700. 43. Lena Company Company has provided provided the following following data (ignore (ignore income income taxes): taxes): 2010 revenues were $99,000. 2010 expenses were $47,800. Dividends declared and paid during 2010 totaled $9,500. Total assets on December 31, 2010 were $177,000. Total liabilities on December 31, 2010 were $89,000. Contributed capital on December 31, 2010 was $28,000. Which of the following is not correct? A. 2010 net income was $51,200. B. Total stockholders' equity on December 31, 2010 was $88,000. C. Retained earnings increased $41,700 during 2010. D. Retained earnings on December 31, 2010 were $41,700. 44. Madrid Madrid Company has provided provided the followi following ng data (ignore (ignore income income taxes): 2010 revenues were $77,500. 2010 net income was $33,900. Dividends declared and paid during 2010 totaled $5,700. Total assets on December 31, 2010 were $217,000. Total stockholders' equity on December 31, 2010 was $123,000. Retained earnings on December 31, 2010 were $83,000. Which of the following is not correct? A. 2010 expenses were $43,600. B. Total liabilities on December 31, 2010 were $94,000. C. Retained earnings increased $33,900 during 2010. D. Contributed capital on December 31, 2010 was $40,000.
45. Madrid Madrid Company has provided provided the followi following ng data (ignore (ignore income income taxes): 2010 revenues were $77,500. 2010 net income was $33,900. Dividends declared and paid during 2010 totaled $5,700. Total assets on December 31, 2010 were $217,000. Total stockholders' equity on December 31, 2010 was $123,000. Retained earnings on December 31, 2010 were $83,000. Which of the following is correct? A. 2010 expenses were $37,900. B. Total liabilities on December 31, 2010 were $11,000. C. Retained earnings increased $28,200 during 2010. D. Contributed capital on December 31, 2010 was $206,000. 46. Which of the following following is the amount amount of revenue reported reported on the income statement statement of a retail company? company? A. B. C. D.
The cash collected from customers during the current period. Both cash and credit sales for the period. Cash sales for the period. period. Cash sales and stockholders' investments. investments.
47. On January 1, 2010 Miller Corporatio Corporation n had retained earnings earnings of $8,000,000. During During 2010, Miller reported reported net income of $1,500,000, declared dividends of $500,000, and issued stock for $1,000,000. What were Miller's retained earnings on December 31, 2010? A. B. C. D.
$7,000,000 $9,500,000 $9,000,000 $7,500,000
48. What are the categori categories es of cash flows flows that appear appear on a statement statement of cash flows? flows? A. B. C. D.
Cash flows from investing, financing, and service activities. Cash flows from operating, production, and internal activities. Cash flows from financing, production, and growth activities. Cash flows from operating, investing, and financing activities.
49. When would would a company report report a net loss loss on the the income stateme statement? nt? A. B. C. D.
When revenues are less than the sum of expenses plus dividends during an accounting period. If assets decreased during an accounting period. If liabilities increased increased during an accounting period. When expenses exceeded revenues for an accounting period.
50. Which of the following following describes describes the amount amount of insurance insurance expense reported reported on the income statement statement?? A. The amount of cash paid for insurance insurance in the current period. B. The amount of cash paid for insurance in the current period less any unpaid insurance at the end of the period. C. The amount of insurance used up (incurred) in the current period to help generate revenue. D. The amount of cash paid for insurance that is reported within the statement of cash flows.
51. Which of the following following would would immediately immediately cause a change in a corporation's corporation's retained retained earnings? earnings? A. B. C. D.
Net income or net loss and declaration of dividends. Declaration of dividends and issuance of stock to new stockholders. Net income and issuance of stock to to new stockholders. Declaration of dividends and purchase of new machinery.
52. Which of the following following describes describes the operations operations section section of a cash flow statement? statement? A. It provides information about how operations have been financed. B. It provides information pertaining to dividend payments to stockholders. C. It provides information with respect to a company's ability to generate cash flow to pay for goods and services. D. It provides the net increase or decrease in cash during the period. 53. Within Within which of the following following would you find the inventory inventory method(s) method(s) being used used by a business business entity? entity? A. Balance sheet B. Income statement C. Notes to the financial statements statements D. Headings of the financial statements statements 54. At the beginning beginning of 2010, a corporation corporation had assets of $270,000 $270,000 and liabilities liabilities of $160,000. $160,000. During 2010, 2010, assets increased $25,000 and liabilities increased $5,000. What was stockholders' equity on December 31, 2010? A. B. C. D.
$140,000 $130,000 $190,000 $80,000
55. During During 2011, Canton Company's assets assets increased increased $95,500 and their liabiliti liabilities es decreased decreased $17,300. Canton Company's stockholders' equity on December 31, 2011 was $211,500. How much was stockholders' equity on January 1, 2011? A. B. C. D.
$98,700 $324,300 $133,300 $289,700
56. How are creditor creditor and investor investor claims claims reported reported on a balance balance sheet? sheet? A. The claims of creditors are liabilities and those of investors investors are assets. B. The claims of both creditors and investors are liabilities, but only the claims of investors are considered c onsidered to be long-term. C. The claims of creditors are reported as liabilities while the claims of investors are recorded as stockholders' equity. D. The claims of creditors and investors are considered to be essentially equivalent.
57. In what order order would would the items items on the balance balance sheet appear? A. B. C. D.
Assets, retained earnings, liabilities, liabilities, and contributed capital. Contributed capital, retained earnings, liabilities, and assets. Assets, liabilities, contributed capital, and retained earnings. Contributed capital, assets, liabilities, liabilities, and retained earnings.
58. Which of the the following following would would increase increase retained retained earnings earnings?? A. An increase in expenses. B. An increase in revenues. C. Declaring a cash dividend. D. Issuing additional common stock. 59. A company's retained retained earnings earnings increased increased $375,000 $375,000 last year and its assets assets increased increased $973,000. $973,000. The company declared a $79,000 cash dividend during the year. What was last year's net income? A. B. C. D.
$296,000 $375,000 $454,000 $519,000
60. Which of the the following following items is reporte reported d as an expense on the income income statement? statement? A. Dividends declared B. Cost of goods sold C. Dividends paid D. Accounts payable 61. Which of the following has primary responsibility to develop Generally Accepted Accounting Principles? A. Financial Accounting Standards Board B. American Accounting Association C. Securities & Exchange Commission D. Public Company Accounting Oversight Board 62. Which of the following has the legal authority to determine financial reporting in the United States? A. Financial Accounting Standards Board B. American Accounting Association C. Securities & Exchange Commission D. Public Company Accounting Oversight Board 63. Which of the the following following is not reported reported as a liability liability on a balance balance sheet? A. Income taxes payable B. Contributed capital C. Accounts payable D. Dividends declared
64. Which of the the following following transactions transactions increas increases es both cash and net net income? A. B. C. D.
Cash receipts from a bank loan. Cash receipts from sale of stock. Cash receipts from customers for services provided. Cash receipts from a bond issue.
65. Which of the following properly describes the impact on the financial statements when a company reports wage expense of $7,500, of which $2,500 remains unpaid? A. Net income decreased $9,000. B. Cash decreased $2,500. C. Net income decreased $7,500. D. Cash decreased $7,500. 66. Which of the following following properly properly describes describes the impact impact on the financial statemen statements ts when a company purchases and pays $8,000 for supplies inventory, of which $2,000 remains unused at the end of the period? A. Net income decreased $6,000. B. Cash decreased $6,000. C. Net income decreased $8,000. D. Cash decreased $2,000. 67. Which of the following following properly properly describes describes the impact impact on the financial statemen statements ts when a company incurs incurs operating expenses of $9,000, of which $3,000 remains unpaid? A. Net income decreased $9,000. B. Cash increased $6,000. C. Net income decreased $3,000. D. Cash decreased $9,000. 68. Which of the following properly describes the impact on the financial statements when a company borrows $20,000 from a local bank? A. Net income decreased $20,000. B. Assets decreased $20,000. C. Stockholders' equity increased $20,000. D. Liabilities increased $20,000. 69. Which of the following would not be reported in the operating activities section of a cash flow statement? statement? A. Cash paid for dividends to stockholders. B. Cash paid for interest expense. C. Cash paid for employee wages. D. Cash received from customers. 70. Which of the following following would would be reported in the financing financing section section of a cash flow statement? statement? A. Cash paid for dividends to stockholders. B. Cash paid for interest expense. C. Cash paid to acquire equipment. D. Cash received from sale of investments.
71. Which of the following following would would be reported in the investing investing section section of a cash flow statement? statement? A. Cash received from customers. B. Cash received from the issue of stock. C. Cash paid to repay a bank loan. D. Cash paid to acquire stock of another company. 72. Which of of the followi following ng statements statements is correct? correct? A. The payment of a cash dividend reduces net income. B. Cash received from an issuance of stock to stockholders is reported as a financing cash flow within the statement of cash flows. C. Providing services to a customer on account doesn't impact net income. D. Interest payments are reported within the statement of cash flows as a financing financing activity. 73. Husky Company Company has provided provided the following following information information for its most most recent year of operation: operation: Cash collected from customers totaled $89,300. Cash borrowed from banks totaled $31,700. Cash paid to employees totaled $32,100. Cash paid for interest totaled $2,900. Cash received from selling Husky stock to stockholders totaled $41,000. Cash payments to banks for repayment of money borrowed totaled $7,500. Cash paid for operating expenses totaled $9,600. Land costing $25,000 was sold for $25,000 cash. Cash paid for dividends to stockholders totaled $3,300. How much was Husky's cash flow from operating ope rating activities? A. B. C. D.
$47,600 $44,700 $41,400 $37,200
74. Husky Company Company has provided provided the following following information information for its most most recent year of operation: operation: Cash collected from customers totaled $89,300. Cash borrowed from banks totaled $31,700. Cash paid to employees totaled $32,100. Cash paid for interest totaled $2,900. Cash received from selling Husky stock to stockholders totaled $41,000. Cash payments to banks for repayment of money borrowed totaled $7,500. Cash paid for operating expenses totaled $9,600. Land costing $25,000 was sold for $25,000 cash. Cash paid for dividends to stockholders totaled $3,300. How much was Husky's cash flow from financing activities? A. B. C. D.
$72,700 $59,000 $65,200 $61,900
75. Sparty Corporati Corporation on has provided the following following information information for its most recent recent year of operation: Revenues earned were $97,000, of which $9,000 were uncollected at the end of the year. Operating expenses incurred were $39,000, of which $7,000 were unpaid at the end of the year. Dividends declared were $11,000, of which $3,000 were unpaid at the end of the year. Income tax expense is 30% of pretax income. How much net income was reported on Sparty's income statement? A. B. C. D.
$32,900 $39,300 $33,600 $40,600
76. Which of of the followi following ng statements statements is correct? correct? A. Revenues are reported on the income statement regardless of whether the customer has p aid for the goods or services. B. Expenses are reported within the income statement during the period that they are paid for. C. Net income includes a deduction for dividend payments made to stockholders. D. Net income normally equals the net cash generated by operations. 77. During During 2010, Rock Company's Company's cash balance increased increased from from $79,000 to $91,300. Rock's Rock's net cash flow from from operating activities was $37,300 and its net ne t cash flow from financing activities was $11,100. How much was Rock's net cash flow from investing activities? A. A net cash flow of $42,900. B. A net cash flow of ($36,100). ($36,100). C. A net cash flow of $60,700. D. A net cash flow of ($60,700). 78. Which of of the followi following ng statements statements is false? false? A. A positive net income results in an increase in retained earnings. B. The ending retained earnings balance from the statement of retained earnings is reported on the balance ba lance sheet. C.The change in the cash balance on the statement of cash flows added to the beginning cash balance equals the ending cash balance. D. The dividends reported on the statement of retained earnings are also reported as d ividend expense on the income statement. 79. Which of the following following is not a consequence consequence to a company resulting resulting from the issue issue of their financial financial statements? A. B. C. D.
The effect on the selling price of their stock. The providing of information to their competitors. The effect on bonus payments to its employees. The providing of information to to their auditors.
80. Which of the following following statement statementss pertaining pertaining to the audit function function is incorrect? incorrect? A. The primary responsibility for the information in the financial financial statements lies with the auditors. B. The audit report describes the auditor's opinion of the fairness of the financial statements. C. An audit ensures that the financial statements conform to generally accepted accounting principles. D. The auditor doesn't examine all of the transactions an entity incurred.
81. The International International Accounting Accounting Standards Standards Board has worked worked to develop develop global accounting accounting standards known known as A. generally accepted accounting principles. B. globally accepted financial standards. C. international financial reporting standards. standards. D. worldwide financial standards. 82. An examination of the financial statements of a business to ensure that they conform to generally accepted accounting principles is called A. a certification. B. an audit. C. a verification. D. a validation. 83. Which of the the following following best best describes describes the the purpose purpose of an audit? audit? A. B. C. D.
To prove the accuracy of an entity's financial statements. To lend credibility to an entity's financial statements. To audit every transaction that an entity entity entered into. To establish that a corporation's stock is a sound investment.
84. Why does does a company company hire hire independe independent nt auditors? auditors? A. B. C. D.
To guarantee the accuracy of both annual and quarterly financial financial statements. To verify the accounting accuracy of every transaction entered into. To report on the fairness of financial statement presentation. The auditors are responsible for the content of the financial statements.
85. Why is the CPA's CPA's role in performi performing ng audits import important ant to our economic economic system? system? A. The auditors provide direct financial advice to potential investors. B. The auditors have the primary responsibility for the information contained in financial statements. C. The auditors issue reports on the accuracy of each financial transaction. D The audit of financial statements helps investors and o thers to know that they can rely on the information . presented in the financial statements. 86. Which of the following following is not one of the three steps steps taken by a corporation corporation to assure the accuracy accuracy of its records? A. Implementing a system of internal controls. B. The hiring of an independent auditor to report on the fairness of the financial statements. C. The hiring of a financial analyst. D. The formation of a committee made up of board of directors' members to oversee ove rsee the integrity of its safeguards utilized. 87. Which of the following groups has primary responsibility responsibility for the information contained in the financial statements? A. The company's management B. The company's auditors C. The company's investors D. The company's internal auditors
88. Which private sector body was given the primary responsibility to to determine detailed detailed auditing standards? standards? A. Financial Accounting Standards Board B. Securities & Exchange Commission C. Public Company Accounting Oversight Board D. American Institute of Certified Public Accountants 89. Which group group maintains maintains the professi professional onal code of ethics ethics to which CPAs CPAs must adhere? adhere? A. American Institute of Certified Public Accountants B. Financial Accounting Standards Board C. Securities & Exchange Commission D. Public Company Accounting Oversight Board 90. Which of the following following is a disadvantage disadvantage of a corporation corporation when compared compared to a partnership? partnership? A. The stockholders have limited liability. liability. B. The corporation is treated as a separate legal entity from the stockholders. C. The corporation and its stockholders are subject to double taxation. D. The corporation must account for the business's transactions separate and apart from those of the owners. 91. Which of the the following following statements statements is true true about a sole propriet proprietorshi orship? p? A. B. C. D.
The owner and the business are separate legal entities but not separate accounting entities. The owner and the business are separate accounting entities but not separate legal entities. The owner and the business are separate legal entities and separate accounting entities. Most large businesses in this country are organized as sole proprietorships. proprietorships.
92. For a business business organized organized as a general partner partnership, ship, which which statement statement is true? true? A. B. C. D.
The owners and the business are are separate legal entities. Each partner is potentially responsible for the debts of the business. Formation of a partnership requires getting a charter from the state of incorporation. A partnership is not considered to be a separate accounting entity.
93. Which of the the following following would not be reported reported on a statement statement of retained retained earnings? earnings? A. Dividend payments B. Net income C. Beginning retained earnings D. Ending retained earnings 94. Which of of the followi following ng statements statements is correct? correct? A. The statement of retained earnings always reports the same amount of dividend payments paymen ts as does the statement of cash flows. B. The statement of cash flows has a relationship with the balance sheet. C Dividends paid are reported on the statement of cash flows as an operating cash flow and on the income . statement as a financing cash flow. D. Net income is reported on the income statement but not on the statement of retained earnings.
95. Which of the following following is not provided provided within within the notes that accomp accompany any the financial financial statements? statements? A. B. C. D.
A description of the accounting rules rules applied. A description of the terms of a lease agreement. A description pertaining to a particular line on the financial statements. A description of net income for each of the prior three years.
96. Which of the following following transacti transactions ons affects affects both retained retained earnings and net income? income? A. The payment of a cash dividend. B. The recording of revenue for services provided. C. The issue of stock in exchange for cash. D. The borrowing of money from a bank. 97. Which of the following transactions affects both the income statement and the statement of cash flows? A. Selling stock in exchange for cash. B. Declaring and paying a cash dividend. C. Selling a product to a customer which creates an account receivable. D. Paying employee wages as they are earned. 98. Which of the following following would would not be found within the investing investing section section of the statement statement of cash flows? flows? A. Cash paid to purchase a manufacturing building. building. B. Cash received from the sale of stock to stockholders. C. Cash received from the sale of manufacturing equipment. D. Cash paid to purchase land. 99. Which of the following is primarily responsible for the information information provided in the financial statements? A. Chief Executive Officer B. External Auditors C. Board of Directors D. Internal Accounting Staff 100.Which of the following doesn't represent a professional accounting certification? A. Certified Management Accountant B. Certified Public Accountant C. Certified Internal Auditor D. Certified Tax Accountant 101.Determine the missing amounts for each independent case below. Assume the amounts given are at the end of the company's first year of operation.
102.Gail's Greenhouse, Inc., a small retail store which sells house plants, started business on January 1, 2010. At the end of January, 2010, the following information was available:
103.Indicate on which financial statement you would expect to find each of the following. If an item can be found on more than one statement, list each statement.
104.For each of the following items that appear on the balance sheet, identify each as an asset (A), liability (L), or element of stockholders' equity (SE). For any item that would not appear on the balance sheet, write the letter, N.
105.Rose Corporation began operations at the start of 2010. During 2010, it made cash and credit sales totaling $500,000 and collected $420,000 in cash from its customers. It purchased inventory costing $250,000, paid $15,000 for dividends and the cost of goods sold was $210,000. The corporation incurred the following expenses during 2010:
106.Cosmos Corporation was established on December 31, 2010, by a group of investors who invested a total of $1,000,000 for shares of the new corporation's stock. During the month of January, 2011, Cosmos provided services to customers for which the total revenue was $100,000. Of this amount, $10,000 had not been collected by the end of January. Cosmos recorded salary expense of $20,000, of which 90% had been paid by the end of the month; rent expense of $5,000, which had been paid on January 1; and other expenses of $12,000, which had been paid by check. On January 31, 2011, Cosmos purchased a van by paying cash of $30,000. There were no other transactions that affected cash.
107.Parker Pool Supply, Inc. reported the following items for the year ended December 31, 2010:
108.National Shops, Inc. reported the following amounts on its balance sheet as of December 31, 2010:
109.During 2010, Winterset Company performed services for which customers paid or promised to pay $587,000. Of this amount, $552,000 had been collected by year-end. Winterset paid $340,000 in cash for employee wages and owed the employees $15,000 at the end of the year for work that had been done but had not paid for. Winterset paid interest expense of $3,000 and $195,000 for other service expenses. The income tax rate was 35%, and income taxes had not yet been paid at the end of the year. Winterset declared and paid dividends of $20,000. There were no other transactions that affected cash.
110.Alfred Company manufactures men's clothing. During 2010, the company reported the following items that affected cash. Indicate whether each of these items is a cash flow from operating activities (O), investing activities (I), or financing activities (F).
111.Fulton Company was established at the beginning of 2010 when several investors paid a total of $200,000 to purchase Fulton stock. No additional investments in stock were made during the year. By December 31, 2010, Fulton had cash on hand of $45,000, office equipment (net) of $40,000, inventories of $156,000, and accounts payable of $10,000. Sales for the year were $812,000. Of this amount, customers still owed $20,000. Fulton paid dividends of $25,000 to its stockholders during 2010.
112.For Glad Rags Shops, the following information is available for the year ended December 31, 2010:
113.Baseline Corporation was formed two years ago to manufacture fitness equipment. It has been profitable and is growing rapidly. It currently has 150 stockholders and 90 employees; most of the employees own at least a few shares of Baseline's stock. The company has received financing from two banks. It will sell additional shares of stock within the next three months and will also seek additional loans and hire new employees to support its continued growth.
114.Larson Company ends its recent year of operations with $3,500,000 in retained earnings. During the year Larson's net income exceeded its dividend declarations by $200,000. Larson's dividend declarations were $25,000 greater than the dividend payments. How much was Larson Company's beginning retained earnings?
115.As of January 1, 2010, a corporation had assets of $340,000 and liabilities of $120,000. During 2010, assets increased $45,000 and liabilities increased $15,000. What was stockholders' equity on December 31, 2010?
116.Laker Company has provided the following information for its most recent year of operation:
117.Laker Company has provided the following information for its most recent year of operation: Cash collected from customers totaled $99,300. Cash borrowed from banks totaled $42,700. Cash paid to employees totaled $23,300. Cash paid for interest totaled $3,100. Cash received from selling an investment in Husky stock totaled $73,000. Cash payments to banks for repayment of money borrowed totaled $9,700. Cash paid for operating expenses totaled $11,200. Land costing $75,000 was sold for $75,000 cash. Cash paid for dividend payments to stockholders totaled $7,700. How much was Laker's net cash ca sh flow from investing activities?
118.Laker Company has provided the following information for its most recent year of operation:
119.During 2010, Rock Company's cash balance increased from $57,000 to $94,300. Rock's net cash flow from operating activities was $26,900 and its net ne t cash flow from financing activities was $13,700. How much was Rock's net cash flow from investing activities?
120.Moss Company has provided the following data:
121.Describe the roles of the Securities & Exchange Commission and The Financial Accounting Standards Board with respect to the development of Generally Accepted Accounting Principles.
122.Describe the elements of the balance sheet equation.
123.Describe the role of a company's management and the external auditors in the accounting communication process.
124.What is the objective of the cash flow statement? Describe the three cash flow classifications that are reported within the cash flow statement.
125.How is net income in the income statement different than cash flow from operations in the cash flow statement?
ch1 Key 1.
A busi busines nesss entity entity's 's account accounting ing system system create createss financ financial ial account accounting ing report reportss whic which h are are provid provided ed to external decision makers. TRUE
The accounting system collects financial data and produces reports used by both internal decision makers and external decision makers. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #1 Topic Area: Understanding the Business
2.
Busine Business ss manager managerss util utilize ize manager managerial ial account accounting ing report reportss to to plan plan and manage manage the daily daily operati operations ons.. TRUE
Managerial accounting reports are for internal use to assist managers with day-to-day operations. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #2 Topic Area: Understanding Business
3.
The bal balan ance ce shee sheett incl includ udes es ass asset ets, s, lia liabi bili liti ties es and and sto stock ckhol holder ders' s' equ equit ity y as of a point point in in time time.. TRUE
The balance sheet reports the amount of assets, liabilities, and stockholders' equity of an e ntity at a point in time. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #3 Topic Area: The Four Basic Financial Statements: An Overview
4.
Reven Revenue ue is is reco recogni gnized zed wit withi hin n the the incom incomee stat statem emen entt duri during ng the the peri period od in in whic which h cash cash is col colle lect cted. ed. FALSE
Revenue is recognized within the income statement during the period in which revenue is earned. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #4 Topic Area: The Four Basic Financial Statements: An Overview
5.
Total Total assets assets are $37,500 $37,500,, tota totall liab liabili ilitie tiess are are $20,000 $20,000 and contrib contribute uted d capit capital al is $10,000; $10,000; theref therefore ore,, retained earnings are $7,500. TRUE
$37,500 = $20,000 + $10,000 + X, X = $7,500 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #5 Topic Area: The Four Basic Financial Statements: An Overview
6.
The inco income me sta state temen mentt is a meas measur uree of an an enti entity ty's 's econ econom omic ic per perfo form rman ance ce for for a per perio iod d of tim time. e. TRUE
The income statement reports the performance of o f a business during the accounting period. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #6 Topic Area: The Four Basic Financial Statements: An Overview
7.
The accou account ntin ing g equa equati tion on sta state tess tha thatt Asse Assets ts = Liab Liabil ilit itie iess + Sto Stock ckhol holder ders' s' Equ Equit ity. y. TRUE
The accounting equation, also known as the balance sheet equation, states that Assets = Liabilities + Stockholders' Equity. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #7 Topic Area: The Four Basic Financial Statements: An Overview
8.
A decis decision ion maker maker who wants wants to underst understand and a compa company's ny's financi financial al statem statement entss must must carefu carefully lly read read the the notes to the financial statements because the notes provide useful supplemental information. TRUE
The notes provide supplemental information necessary to fully understand the financial statements. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #8 Topic Area: The Four Basic Financial Statements: An Overview
9.
The financi financial al stat statemen ementt that that shows shows an enti entity' ty'ss econom economic ic reso resourc urces es and and clai claims ms agai against nst those those reso resourc urces es is is the balance sheet. TRUE
Balance sheet contains assets (economic resources), liabilities (claims against those resources), and stockholders' equity. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #9 Topic Area: The Four Basic Financial Statements: An Overview
10.
Assets Assets are initia initially lly record recorded ed on on the balance balance sheet sheet at at the the total total cost cost paid paid to to acquir acquiree the the asset asset.. TRUE
Assets on the balance sheet are reported at the cost incurred to acquire them. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #10 #10 Topic Area: The Four Basic Financial Statements: An Overview
11.
Stockho Stockholde lders' rs' equity equity on the the balance balance sheet sheet consi consists sts of contr contribu ibuted ted capi capital tal and and retai retained ned earn earning ings. s. TRUE
The stockholders' equity section of the balance sheet represents financing provided by owners of the business (contributed capital) and earnings (retained earnings). AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #11 #11 Topic Area: The Four Basic Financial Statements: An Overview
12.
The amou amount nt of cash cash paid paid by a busin business ess for divi dividend dendss would would be repor reported ted on on the stat stateme ement nt of cash cash flows flows as an operating activity. FALSE
Dividends are reported on the statement of retained earnings. On the statement of c ash flows, dividends show up as a financing activity. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #12 #12 Topic Area: The Four Basic Financial Statements: An Overview
13.
A company' company'ss retain retained ed earnin earnings gs balan balance ce increa increased sed $50,0 $50,000 00 last last year; year; ther therefo efore, re, net net income income last last year year must must have been $50,000. FALSE
Retained earnings is increased by net income and decreased by dividends, we would need to know the dividend amount was zero in this situation to make the above statement true. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #13 #13 Topic Area: The Four Basic Financial Statements: An Overview
14.
The stat stateme ement nt of retain retained ed earni earnings ngs explain explainss the the change change in in the retain retained ed earnin earnings gs balan balance ce caused caused by by stockholder investments and dividend declarations. FALSE
Beginning retained earnings + net income - dividends = ending retained earnings AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #14 #14 Topic Area: The Four Basic Financial Statements: An Overview
15.
The Fina Financi ncial al Accoun Accountin ting g Standar Standards ds Board Board (FAS (FASB) B) has has been been given given the the author authority ity by by the Securit Securities ies and Exchange Commission (SEC) to develop generally accepted accounting principles. TRUE
Previously the Securities and Exchange Commission worked with organizations of professional accountants to develop generally accepted accounting principles; today this is handled by the Financial Accounting Standards Board. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Identify Identify the role of generally accepted accounting principles (GAAP) in determining determining the content of financial statements. Libby - Chapter 01 #15 #15 Topic Area: Responsibilities for the Accounting Communication Process
16.
In the the United United Stat States, es, the the Secur Securiti ities es and and Exchang Exchangee Commis Commissio sion n (SEC) (SEC) is is consid consideri ering ng the the adopti adoption on of International Financial Reporting Standards (IFRS). TRUE
Since 2002 there has been a significant movement in the United States to adopt the International Financial Reporting Standards. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Identify Identify the role of generally accepted accounting principles (GAAP) in determining determining the content of financial statements. Libby - Chapter 01 #16 #16 Topic Area: Responsibilities for the Accounting Communication Process
17.
The prima primary ry respo responsi nsibil bility ity for for the the content content of the fina financi ncial al state statemen ments ts lies lies with with the the extern external al audit auditor. or. FALSE
Primary responsibility for the information in the financial statements lies with management. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-03 Distinguish the roles of managers and auditors auditors in the accounting communication communication process. Libby - Chapter 01 #17 #17 Topic Area: Management Responsibility and the Demand for Auditing
18.
An audit audit examine examiness the the financi financial al state statement mentss provi provided ded by by managem management ent to to ensure ensure that that they they repr represe esent nt what they claim and to make sure that they are in compliance with Generally Accepted Accounting Principles. TRUE
This is the definition of an audit. AACSB: Reflective Thinking AICPA BB: Legal AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-03 Distinguish the roles of managers and auditors auditors in the accounting communication communication process. Libby - Chapter 01 #18 #18 Topic Area: Management Responsibility and the Demand for Auditing
19.
The audit auditor or can can be held held liable liable for for malpr malpract actice ice in in situat situation ionss where where the the invest investors ors suff suffere ered d losses losses whil whilee relying on the financial statements. TRUE
If it is determined that the independent CPA committed malpractice, they may be held liable for losses suffered by investors who relied on the financial statements. AACSB: Reflective Thinking AICPA BB: Legal AICPA FN: Risk Analysis Blooms: Remember Difficulty: Easy Learning Objective: 01-04 Appreciate the importance importance of ethics; reputation; and legal liability liability in accounting. Libby - Chapter 01 #19 #19 Topic Area: Ethics, Reputation and Legal Liability
20.
One of of the the advant advantages ages of a corp corpora oratio tion n when when compar compared ed to a partne partnersh rship ip is the limi limited ted liab liabili ility ty of the owners. TRUE
In a partnership each partner has ha s unlimited liability, in a corporation the stockholders have limited liability. AACSB: Reflective Thinking AICPA BB: Legal AICPA FN: Decision Modeling Blooms: Remember Difficulty: Easy Learning Objective: Supplement A Libby - Chapter 01 #20 #20 Topic Area: Types of Business Entities
21.
Which Which of the follow following ing descri describes bes the primar primary y objec objectiv tivee of of the the bala balance nce sheet? sheet? A. To measure the net income of a business up to a particular point in time. B. To report the difference between cash inflows and cash outflows for the period. repo rting entity at a particular point in time. C. To report the financial position of the reporting D. To report the market value of assets, liabilities and stockholders' equity at a particular point in time. time. The balance sheet reports the amount of assets, liabilities, and stockholders' equity (financial position) of an accounting entity at a t a particular point in time. These positions po sitions are reported at historical cost, not market value.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #21 #21 Topic Area: The Four Basic Financial Statements: An Overview
22.
During During the fiscal fiscal year ended ended 2010, 2010, a comp company any had had reven revenues ues of $400, $400,000, 000, expense expensess of $280,00 $280,000, 0, and and an income tax rate of 30 percent. What was the company's 2010 net income? A. $120,000 A. $120,000 B. $36,000 B. C. $84,000 D. $400,000 D. $400,000 ($400,000 - $280,000) (1 - .30) = $84,000
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #22 #22 Topic Area: The Four Basic Financial Statements: An Overview
23.
Atlant Atlantic ic Corpo Corporat ration ion repor reported ted the the follo followin wing g amount amountss at the the end end of the the firs firstt year year of oper operati ations ons:: contributed capital $200,000; sales revenue $800,000; total assets $600,000; dividends declared $40,000; and total liabilities $320,000. What are Atlantics' retained earnings at the end of the year and how much expenses were incurred during the year? Retained earnings are $80,000 and expenses incurred totaled $680,000. B. Retained earnings are $80,000 and expenses incurred totaled $720,000. C. Retained earnings are $280,000 and expenses incurred totaled $480,000. D. Retained D. Retained earnings are $280,000 and expenses incurred totaled $520,000.
A.
Stockholders' equity ($600,000 -$320,000) = Contributed capital ($200,000) +Retained earnings ($80,000). Retained earnings ($80,000) = Net income ($120,000 - Dividends ($40,000.) Net income ($120,000) = Sales Revenue ($800,000) - Expenses ($680,000). AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #23 #23 Topic Area: The Four Basic Financial Statements: An Overview
24. 24.
Whic Wh ich h of of the the foll follow owin ing g bes bestt des descr crib ibes es the the bal balanc ancee she sheet et?? A. It includes a listing of assets at their market values. B. It includes a listing of assets, liabilities, liabilities, and stockholders' equity at their market values. C. It provides information pertaining to a company's assets and the providers of the assets. D. It provides information pertaining to a company's liabilities for a period of time. time. The balance sheet reports the assets, liabilities, and stockholders' equity at their historical costs.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #24 #24 Topic Area: The Four Basic Financial Statements: An Overview
25. 25.
Whic Wh ich h of of the the foll follow owin ing g sta state teme ment ntss is is cor corre rect ct?? A. Assets on the balance sheet include retained earnings. B. Retained B. Retained earnings include contributed capital. C. The balance sheet equation states that assets assets equal contributed capital. D. A corporation's net income does not necessarily equal its cash flow from operations. Revenue is recorded as it is earned, not necessarily when the cash c ash from the sales is collected. Expenses are recorded when incurred in generating revenue regardless of when cash is expended.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #25 #25 Topic Area: The Four Basic Financial Statements: An Overview
26.
Which Which of the follow following ing correc correctly tly descri describes bes the variou variouss fina financi ncial al statem statement ents? s? An income statement covers a period of time. B. The cash flow statement is a point in time financial statement. C. The balance sheet is a period of time financial statement. D. The statement of retained earnings is a point in time financial statement.
A.
The income statement reports the performance of o f a business during the accounting period. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #26 #26 Topic Area: The Four Basic Financial Statements: An Overview
27. 27.
Whic Wh ich h of the the fol follo lowi wing ng acco account untss woul would d not not be repo report rted ed on the the bala balance nce she sheet et?? A. Retained earnings A. Retained B. Inventory B. C. Accounts C. Accounts payable D. Dividends Dividends are reported on the statement of retained earnings.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #27 #27 Topic Area: The Four Basic Financial Statements: An Overview
28. 28.
Whic Wh ich h of the the fol follo lowi wing ng wou would ld not not be be foun found d on the the sta state teme ment nt of of cash cash flo flows ws?? Cost flow from manufacturing activities B. Cash flow from operating activities C. Cash flow from investing investing activities D. Cash flow from financing activities
A.
The statement of cash flows includes cash flows from operating, investing, and financing activities. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #28 #28 Topic Area: The Four Basic Financial Statements: An Overview
29. 29.
Whic Wh ich h of the the fol follo lowi wing ng acco account untss is not not a liabi liabili lity ty on on the the bala balanc ncee sheet sheet?? Retained earnings B. Notes B. Notes payable C. Taxes C. Taxes payable D. Interest D. Interest payable
A.
Retained earnings is reported on the balance sheet as a component of stockholders' equity. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #29 #29 Topic Area: The Four Basic Financial Statements: An Overview
30.
What What financ financial ial statem statement ent woul would d you look look at to dete determi rmine ne the the divide dividends nds declar declared ed by a busine business? ss? A. Income A. Income statement B. Statement of retained earnings C. Statement C. Statement of cash flows D. Balance D. Balance sheet Beginning retained earnings + net income - dividends = ending retained earnings
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #30 #30 Topic Area: The Four Basic Financial Statements: An Overview
31.
Which Which fina financi ncial al stat stateme ement nt woul would d you you utiliz utilizee to determ determine ine wheth whether er a company company will will be able to pay pay liabilities which are due in 30 days? A. Income A. Income statement B. Balance sheet C. Statement C. Statement of retained earnings D. Statement D. Statement of cash flows The balance sheet includes the current assets and current liabilities account balances.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #31 #31 Topic Area: The Four Basic Financial Statements: An Overview
32.
Which Which of the follow following ing is conside considered red to be an an expens expensee on the income income statem statement ent?? A. Accounts payable A. Accounts B. Notes B. Notes payable C. Wages C. Wages payable D. Cost of goods sold Income statements begin with sales less cost of goods sold. Payables are liabilities not expenses.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #32 #32 Topic Area: The Four Basic Financial Statements: An Overview
33. 33.
Whic Wh ich h of of the the foll follow owin ing g bes bestt des descr crib ibes es asse assets ts?? A. They are equal to liabilities minus stockholders' equity. B. They are considered to be the economic resources of the business. C. They are all reported on the balance sheet at their current market value. D. They D. They equal contributed capital. Assets include but are not limited to cash, inventory, and land. These are considered to be economic resources of a business.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #33 #33 Topic Area: The Four Basic Financial Statements: An Overview
34.
Which Which of the follow following ing account accountss woul would d be be repor reported ted as assets assets on the the balance balance sheet? sheet? A. Cash, accounts payable, and notes payable. A. Cash, B. Cash, B. Cash, retained earnings, and accounts receivable. C. Cash, accounts receivable, and inventory. D. Inventories, D. Inventories, property and equipment, and contributed capital. Assets are considered the economic resources of a business. Cash, accounts receivable, and inventory are all considered economic resources.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #34 #34 Topic Area: The Four Basic Financial Statements: An Overview
35. 35.
Whic Wh ich h of the the foll follow owin ing g stat statem ement entss desc descri ribe bess the the bal balanc ancee shee sheet? t? A. It reports a company's revenues and expenses. balanc e sheet at their historical cost. B. Assets are generally reported on the balance C. Stockholders' equity includes only retained earnings. D. It reports a company's cash flow from operations. The balance sheet reports assets, liabilities, and stockholders' equity all at historical costs.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #35 #35 Topic Area: The Four Basic Financial Statements: An Overview
36.
Which Which of the follow following ing best best desc describ ribes es liabil liabiliti ities es and stockho stockholde lders' rs' equity? equity? They are the sources of financing an entity's assets. B. They are the economic resources used by a business entity. C. They are reported on the income statement. D. They D. They both increase when assets increase.
A.
Liabilities are a source of financing from creditors. Stockholders' equ ity is a source of financing from stockholders. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #36 #36 Topic Area: The Four Basic Financial Statements: An Overview
37. 37.
Whic Wh ich h of the the foll follow owin ing g equa equati tions ons is the the bala balanc ncee sheet sheet equa equati tion on?? A. Assets + Liabilities = Stockholders' Equity B. Assets + Stockholder's Equity = Liabilities C. Assets = Liabilities + Stockholders' Equity D. Assets = Liabilities + Contributed Capital A balance sheet has two sides, the left side is assets and the right side ha s both liabilities and stockholders' equity. The total balance from each side must equal each other. Thus Assets = Liabilities + Stockholders' Equity.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #37 #37 Topic Area: The Four Basic Financial Statements: An Overview
38.
Willie Willie Compa Company' ny'ss retain retained ed earni earnings ngs incr increas eased ed $20,00 $20,000 0 during during 2010. 2010. What What was Willie Willie's 's 2010 2010 net net income income or loss given that Willie declared $25,000 of dividends during 2010? A. Net A. Net income was $5,000. B. Net income was $45,000. C. Net C. Net loss was $45,000. D. Net D. Net loss was $5,000. The increase in retained earnings ($20,000) equals net income ($45,000) less dividends ($25,000).
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #38 #38 Topic Area: The Four Basic Financial Statements: An Overview
39.
Which Which of of the the follo followin wing g are are the the compo component nentss of stockho stockholde lders' rs' equity equity on the the bala balance nce sheet? sheet? A. Contributed capital and long-term liabilities. B. Contributed capital and property, plant, and equipment. C. Retained C. Retained earnings and notes payable. D. Contributed capital and retained earnings. Stockholders' equity indicates the amount of financing provided by owners of the business and earnings. Investments from owners are called contributed capital; the amount of earnings reinvested in the business is called retained earnings.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #39 #39 Topic Area: The Four Basic Financial Statements: An Overview
40.
Which Which financ financial ial stat stateme ement nt would would you you use use to deter determin minee a company company's 's earni earnings ngs perf perform ormance ance during during an an accounting period? A. Balance sheet A. Balance B. Statement B. Statement of retained earnings C. Income statement D. Statement D. Statement of cash flows The income statement reports the company's financial performance over an accounting period.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #40 #40 Topic Area: The Four Basic Financial Statements: An Overview
41. 41.
Whic Wh ich h of the the fol follo lowi wing ng equa equati tions ons best best desc descri ribe bess the the inco income me sta state teme ment nt?? A. Assets - Liabilities = Stockholders' Equity B. Net B. Net income = Revenues + Expenses C. Net income = Revenues - Expenses. D. Retained earnings = Net Income + Dividends The income statement equation is revenues - expenses = net income
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #41 #41 Topic Area: The Four Basic Financial Statements: An Overview
42. 42.
Lena Lena Comp Company any has prov provid ided ed the the fol follo lowi wing ng dat dataa (igno (ignore re inco income me tax taxes es): ): 2010 revenues were $99,000. 2010 expenses were $47,800. Dividends declared and paid during 2010 totaled $9,500. Total assets on December 31, 2010 were $177,000. Total liabilities on December 31, 2010 were $89,000. Contributed capital on December 31, 2010 was $28,000. Which of the following is correct? A. 2010 net income was $41,700. A. 2010 B. Total stockholders' equity on December 31, 2010 was $236,000. C. Retained earnings on December 31, 2010 were $60,000. D. Retained D. Retained earnings on December 31, 2010 were $41,700. Stockholders' equity ($177,000 - $89,000) = Contributed capital ($28,000) + Retained earnings ($60,000).
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #42 #42 Topic Area: The Four Basic Financial Statements: An Overview
43. 43.
Lena Lena Comp Company any has prov provid ided ed the the fol follo lowi wing ng dat dataa (igno (ignore re inco income me tax taxes es): ): 2010 revenues were $99,000. 2010 expenses were $47,800. Dividends declared and paid during 2010 totaled $9,500. Total assets on December 31, 2010 were $177,000. Total liabilities on December 31, 2010 were $89,000. Contributed capital on December 31, 2010 was $28,000. Which of the following is not correct? A. 2010 net income was $51,200. A. 2010 B. Total stockholders' equity on December 31, 2010 was $88,000. C. Retained C. Retained earnings increased $41,700 during 2010. D. Retained earnings on December 31, 2010 were $41,700. Stockholders' equity ($177,000 - $89,000) = Contributed capital ($28,000) + Retained earnings ($60,000).
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #43 #43 Topic Area: The Four Basic Financial Statements: An Overview
44. 44.
Madr Madrid id Com Compa pany ny has has provi provided ded the the fol follo lowi wing ng data data (ig (ignor noree incom incomee taxes taxes): ): 2010 revenues were $77,500. 2010 net income was $33,900. Dividends declared and paid during 2010 totaled $5,700. Total assets on December 31, 2010 were $217,000. Total stockholders' equity on December 31, 2010 was $123,000. Retained earnings on December 31, 2010 were $83,000. Which of the following is not correct? A. 2010 expenses were $43,600. A. 2010 B. Total liabilities on December 31, 2010 were $94,000. C. Retained earnings increased $33,900 during 2010. D. Contributed D. Contributed capital on December 31, 2010 was $40,000. Retained earnings increased $28,200 because net income ($33,900) was greater than dividends ($5,700).
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #44 #44 Topic Area: The Four Basic Financial Statements: An Overview
45. 45.
Madr Madrid id Com Compa pany ny has has provi provided ded the the fol follo lowi wing ng data data (ig (ignor noree incom incomee taxes taxes): ): 2010 revenues were $77,500. 2010 net income was $33,900. Dividends declared and paid during 2010 totaled $5,700. Total assets on December 31, 2010 were $217,000. Total stockholders' equity on December 31, 2010 was $123,000. Retained earnings on December 31, 2010 were $83,000. Which of the following is correct? A. 2010 expenses were $37,900. A. 2010 B. Total liabilities on December 31, 2010 were $11,000. C. Retained earnings increased $28,200 during 2010. D. Contributed D. Contributed capital on December 31, 2010 was $206,000. Retained earnings increased $28,200 because net income ($33,900) was greater than dividends ($5,700).
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #45 #45 Topic Area: The Four Basic Financial Statements: An Overview
46.
Which Which of the foll followi owing ng is the amou amount nt of revenu revenuee report reported ed on the the incom incomee statem statement ent of of a retai retaill company company?? A. The cash collected from customers during the current period. B. Both cash and credit sales for the period. C. Cash sales for the period. D. Cash sales and stockholders' investments. Revenue for a retail company includes all sales earned during the accounting period, both cash and credit.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #46 #46 Topic Area: The Four Basic Financial Statements: An Overview
47.
On Janua January ry 1, 1, 2010 2010 Mille Millerr Corpo Corporat ration ion had reta retaine ined d earnin earnings gs of of $8,000 $8,000,000 ,000.. Durin During g 2010, 2010, Mill Miller er reported net income of $1,500,000, declared dividends of $500,000, and issued stock for $1,000,000. What were Miller's retained earnings on December 31, 2010? A. $7,000,000 A. $7,000,000 B. $9,500,000 B. C. $9,000,000 D. $7,500,000 D. $7,500,000 Ending retained earnings ($9,000,000) = Beginning retained earnings ($8,000,000) + Net income ($1,500,000) - Dividends ($500,000).
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #47 #47 Topic Area: The Four Basic Financial Statements: An Overview
48.
What What are are the categor categories ies of cash cash flow flowss that that appear appear on a statem statement ent of cash cash flow flows? s? A. Cash flows from investing, financing, and service activities. B. Cash flows from operating, operating, production, and internal activities. C. Cash flows from financing, financing, production, and growth activities. a ctivities. D. Cash flows from operating, investing, and financing activities. The statement of cash flows has three sections: cash flows from 1) Operations 2) Investing and 3) Financing.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #48 #48 Topic Area: The Four Basic Financial Statements: An Overview
49. 49.
When Wh en woul would d a compan company y rep repor ortt a net loss loss on the the inco income me stat statem ement ent?? A. When revenues are less than the sum of expenses plus dividends during an accounting period. B. If assets decreased during an accounting period. C. If liabilities increased during an accounting period. D. When expenses exceeded revenues for an accounting period. Net income or loss is equal to revenues less expenses. If expenses exceed revenues, a business would report a net loss.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #49 #49 Topic Area: The Four Basic Financial Statements: An Overview
50.
Which Which of the foll followi owing ng descr describe ibess the the amount amount of of insur insuranc ancee expens expensee report reported ed on the the incom incomee statem statement ent?? A. The amount of cash paid for insurance in the current period. B. The amount of cash paid for insurance in the current period less any unpaid insurance at the end e nd of the period. C. The amount of insurance used up (incurred) in the current period to help generate revenue. D. The amount of cash paid for insurance that is reported within the statement of cash flows. The income statement reports expenses as they are incurred for the accounting period.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #50 #50 Topic Area: The Four Basic Financial Statements: An Overview
51.
Which Which of of the the follo followin wing g would would immedi immediate ately ly caus causee a change change in a corpor corporati ation' on'ss retai retained ned earnin earnings? gs? Net income or net loss and declaration of dividends. B. Declaration of dividends and issuance of stock to new stockholders. C. Net income and issuance of stock to new stockholders. D. Declaration of dividends and purchase of new machinery.
A.
Beginning retained earnings + net income - dividends = ending retained earnings AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #51 #51 Topic Area: The Four Basic Financial Statements: An Overview
52.
Which Which of of the the follo followin wing g descr describe ibess the the oper operati ations ons sectio section n of a cash cash flow flow statem statement ent?? A. It provides information about how operations have been financed. B. It provides information pertaining to dividend payments to stockholders. C. It provides information with respect to a company's ab ility to generate cash flow to pay for goods and services. D. It provides the net increase or decrease in cash during the period. Cash flows from operating activities are cash flows directly related to e arning income.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #52 #52 Topic Area: The Four Basic Financial Statements: An Overview
53.
Within Within whic which h of the the follo followin wing g would would you you find find the the invent inventory ory meth method( od(s) s) bein being g used used by a busin business ess entity entity?? A. Balance sheet A. Balance B. Income B. Income statement C. Notes to the financial statements D. Headings D. Headings of the financial statements The notes provide information behind the numbers that allow the user to completely understand the financial statements.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #53 #53 Topic Area: The Four Basic Financial Statements: An Overview
54.
At the the beginn beginning ing of of 2010, 2010, a corpo corporat ration ion had had asset assetss of $270, $270,000 000 and and liabi liabilit lities ies of of $160,00 $160,000. 0. Durin During g 2010, 2010, assets increased $25,000 and liabilities increased $5,000 . What was stockholders' equity on December Dece mber 31, 2010? A. $140,000 A. $140,000 B. $130,000 C. $190,000 C. D. $80,000 D. $80,000 Stockholders' equity ($130,000) on December 31, 2010 = Beginning stockholders' equity ($270,000 $160,000) + increase in stockholders' equity ($25,000 - $5,000) during 2010.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #54 #54 Topic Area: The Four Basic Financial Statements: An Overview
55.
During During 2011, 2011, Canton Canton Compa Company' ny'ss assets assets increa increased sed $95, $95,500 500 and and their their liabil liabiliti ities es decre decrease ased d $17,30 $17,300. 0. Canton Company's stockholders' equity on December 31, 2011 was $211,500. How much was stockholders' equity on January 1, 2011? $98,700 B. $324,300 B. C. $133,300 C. D. $289,700 D. $289,700
A.
Stockholders' equity ($98,700) on January 1, 2010 = Stockholders equity ($211,500) on December 31, 2010 - the increase in stockholders' equity ($95,500 + 17,300) during 2010. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #55 #55 Topic Area: The Four Basic Financial Statements: An Overview
56. 56.
How How are are credi credito torr and and inves investo torr clai claims ms repor reporte ted d on a bala balance nce shee sheet? t? A. The claims of creditors are liabilities and those of investors are a ssets. B. The claims of both creditors and investors are liabilities, but only the claims of investors are considered to be long-term. C. The claims of creditors are reported as liabilities while the claims of inve stors are recorded as stockholders' equity. D. The claims of creditors and investors are considered to be essentially equivalent. Liabilities and Stockholders' Equity are the sources of financing for the firm's economic resources. Creditors' claims are reported as liabilities while investors' claims are reported as stockholders' equity.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #56 #56 Topic Area: The Four Basic Financial Statements: An Overview
57. 57.
In what what orde orderr wou would ld the the ite items ms on the the bal balan ance ce sheet sheet appea appear? r? A. Assets, retained earnings, liabilities, and contributed capital. B. Contributed capital, retained earnings, liabilities, liabilities, and assets. C. Assets, liabilities, contributed capital, and retained earnings. D. Contributed capital, assets, liabilities, and retained earnings. The balance sheet order is assets, liabilities, and stockholders' equity. Stockholders' equity includes contributed capital and retained earnings.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #57 #57 Topic Area: The Four Basic Financial Statements: An Overview
58. 58.
Whic Wh ich h of of the the foll follow owin ing g wou would ld incr increa ease se reta retain ined ed earni earning ngs? s? A. An A. An increase in expenses. B. An increase in revenues. C. Declaring C. Declaring a cash dividend. D. Issuing D. Issuing additional common stock. Net income increases retained earnings. Increased revenue, given a fixed expense amount, would increase net income.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #58 #58 Topic Area: The Four Basic Financial Statements: An Overview
59.
A compan company's y's reta retained ined earnin earnings gs incr increas eased ed $375,0 $375,000 00 last last year year and and its its asset assetss incre increase ased d $973,00 $973,000. 0. The The company declared a $79,000 cash dividend during the year. What was last year's net income? A. $296,000 A. $296,000 B. $375,000 B. C. $454,000 D. $519,000 D. $519,000 The $375,000 increase in retained earnings = Net income ($454,000) - Dividends ($79,000).
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #59 #59 Topic Area: The Four Basic Financial Statements: An Overview
60.
Which Which of the follow following ing items items is report reported ed as as an an expen expense se on the the incom incomee stat stateme ement? nt? A. Dividends A. Dividends declared B. Cost of goods sold C. Dividends C. Dividends paid D. Accounts D. Accounts payable Income statements begin with sales less cost of goods sold. Cost of goods sold is an expense. exp ense.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #60 #60 Topic Area: The Four Basic Financial Statements: An Overview
61.
Which Which of of the the follo followin wing g has primar primary y respo responsi nsibil bility ity to devel develop op Gener Generall ally y Accept Accepted ed Accou Accounti nting ng Principles? Financial Accounting Standards Board B. American B. American Accounting Association C. Securities C. Securities & Exchange Commission D. Public D. Public Company Accounting Oversight Board
A.
The Securities and Exchange Commission have charged the Financial Accounting Standards Board with developing Generally Accepted Accounting Principles. AACSB: Reflective Thinking AICPA BB: Legal AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Identify Identify the role of generally accepted accounting principles (GAAP) in determining determining the content of financial statements. Libby - Chapter 01 #61 #61 Topic Area: Responsibilities for the Accounting Communication Process
62.
Which Which of the foll followi owing ng has has the the legal legal autho authorit rity y to deter determin minee financ financial ial repor reportin ting g in the the Unite United d States States?? A. Financial Accounting Standards Board A. Financial B. American B. American Accounting Association C. Securities & Exchange Commission D. Public D. Public Company Accounting Oversight Board The Securities and Exchange Commission is the government agency that determines the financial statements that public companies must provide to stockho lders. AACSB: Reflective Thinking AICPA BB: Legal AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Identify Identify the role of generally accepted accounting principles (GAAP) in determining determining the content of financial statements. Libby - Chapter 01 #62 #62 Topic Area: Responsibilities for the Accounting Communication Process
63. 63.
Whic Wh ich h of the the fol follo lowi wing ng is is not not repor reporte ted d as a liabi liabili lity ty on on a bala balanc ncee sheet sheet?? A. Income A. Income taxes payable B. Contributed capital C. Accounts C. Accounts payable D. Dividends D. Dividends declared Contributed capital is a component of stockholders' equity on the balance sheet.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #63 #63 Topic Area: The Four Basic Financial Statements: An Overview
64. 64.
Whic Wh ich h of the the fol follo lowi wing ng tra trans nsact actio ions ns incr increas eases es bot both h cash cash and net net inco income me?? A. Cash receipts from a bank loan. A. Cash B. Cash receipts from sale sale of stock. C. Cash receipts from customers for services provided. D. Cash receipts from a bond issue. Net income is the result of revenues less expenses. Cash receipts from customers increases revenue, which flows through to an increase in net income. The cash receipt aspect also increases the cash account.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #64 #64 Topic Area: The Four Basic Financial Statements: An Overview
65.
Which Which of the foll followi owing ng proper properly ly descr describe ibess the the impact impact on on the fina financi ncial al state statement mentss when when a company company reports wage expense of $7,500, of which $2,500 remains unpaid? A. Net income decreased $9,000. A. Net B. Cash B. Cash decreased $2,500. C. Net income decreased $7,500. D. Cash D. Cash decreased $7,500. The expense portion is reported on o n the income statement as it is incurred. This increases expenses, thus decreasing net income. The unpaid portion is classified a liability on the balance sheet.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #65 #65 Topic Area: The Four Basic Financial Statements: An Overview
66.
Which Which of the foll followi owing ng proper properly ly descr describe ibess the the impact impact on on the fina financi ncial al state statement mentss when when a company company purchases and pays $8,000 for supplies inventory, of which $2,000 remains unused at the end of the period? Net income decreased $6,000. B. Cash B. Cash decreased $6,000. C. Net C. Net income decreased $8,000. D. Cash D. Cash decreased $2,000.
A.
The amount used during the period ($8,000 - $2,000 = $6,000) is reported on the income statement as an expense. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #66 #66 Topic Area: The Four Basic Financial Statements: An Overview
67.
Which Which of the foll followi owing ng proper properly ly descr describe ibess the the impact impact on on the fina financi ncial al state statement mentss when when a company company incurs operating expenses of $9,000, of which $3,000 remains unpaid? Net income decreased $9,000. B. Cash B. Cash increased $6,000. C. Net C. Net income decreased $3,000. D. Cash D. Cash decreased $9,000.
A.
Expenses are reported on the income statement as they are incurred regardless of whether they have been paid or not. The entire $9,000 is reported on the income statement and thus decreases net income. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #67 #67 Topic Area: The Four Basic Financial Statements: An Overview
68.
Which Which of the foll followi owing ng proper properly ly descr describe ibess the the impact impact on on the fina financi ncial al state statement mentss when when a company company borrows $20,000 from a local bank? A. Net income decreased $20,000. A. Net B. Assets B. Assets decreased $20,000. C. Stockholders' C. Stockholders' equity increased $20,000. D. Liabilities increased $20,000. The amount borrowed needs to be repaid, and the local bank is a creditor, therefore liabilities are increased by the amount of the loan.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #68 #68 Topic Area: The Four Basic Financial Statements: An Overview
69.
Which Which of of the the follo followin wing g would would not be be repor reported ted in the the opera operatin ting g activi activitie tiess secti section on of of a cash cash flow flow statement? Cash paid for dividends to stockholders. B. Cash B. Cash paid for interest expense. C. Cash C. Cash paid for employee wages. D. Cash D. Cash received from customers.
A.
Cash paid for dividends to stockholders is not a cash flow directly related to earning income, therefore it is not reported in the operating activities section of the cash flow statement. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #69 #69 Topic Area: The Four Basic Financial Statements: An Overview
70.
Which Which of of the the follo followin wing g would would be repor reported ted in the the fina financi ncing ng sect section ion of of a cash cash flow flow state statement ment?? Cash paid for dividends to stockholders. B. Cash B. Cash paid for interest expense. C. Cash C. Cash paid to acquire equipment. D. Cash received from sale of investments.
A.
The financing section of the statement of cash flows reflects cash received and p aid out as a result of financing the business. Cash paid for dividends to stockholders is part of this section because stockholders are a component of the financing of a business. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #70 #70 Topic Area: The Four Basic Financial Statements: An Overview
71.
Which Which of of the the follo followin wing g would would be repor reported ted in the the inves investin ting g secti section on of a cash cash flow flow statem statement ent?? A. Cash received from customers. A. Cash B. Cash received from the issue issue of stock. C. Cash paid to repay a bank loan. D. Cash paid to acquire stock of another company. Cash flows from investing include cash flows related to the purchase and sale of a company's assets. Stock of another company is considered an asset.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #71 #71 Topic Area: The Four Basic Financial Statements: An Overview
72. 72.
Whic Wh ich h of of the the foll follow owin ing g sta state teme ment ntss is is cor corre rect ct?? A. The A. The payment of a cash dividend reduces net income. B. Cash received from an issuance of stock to stockholders is reported as a financing cash flow within the statement of cash flows. C. Providing services to a customer on account doesn't impact net income. D. Interest payments are reported within the statement of cash flows as a financing financing activity. Issuance of stock is a financing activity ac tivity and the cash received as a s a result of this is reported in the financing section of the statement of cash flows.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #72 #72 Topic Area: The Four Basic Financial Statements: An Overview
73.
Husky Husky Compa Company ny has has provi provided ded the the foll followi owing ng info informa rmatio tion n for for its its most most recen recentt year year of of opera operatio tion: n: Cash collected from customers totaled $89,300. Cash borrowed from banks totaled $31,700. Cash paid to employees totaled $32,100. Cash paid for interest totaled $2,900. Cash received from selling Husky stock to stockholders totaled $41,000. Cash payments to banks for repayment of money borrowed totaled $7,500. Cash paid for operating expenses totaled $9,600. Land costing $25,000 was sold for $25,000 cash. Cash paid for dividends to stockholders totaled $3,300. How much was Husky's cash flow from operating o perating activities? A. $47,600 A. $47,600 B. $44,700 C. $41,400 C. D. $37,200 D. $37,200 $44,700 = $89,300 - $32,100 - $2,900 - $9,600
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #73 #73 Topic Area: The Four Basic Financial Statements: An Overview
74.
Husky Husky Compa Company ny has has provi provided ded the the foll followi owing ng info informa rmatio tion n for for its its most most recen recentt year year of of opera operatio tion: n: Cash collected from customers totaled $89,300. Cash borrowed from banks totaled $31,700. Cash paid to employees totaled $32,100. Cash paid for interest totaled $2,900. Cash received from selling Husky stock to stockholders totaled $41,000. Cash payments to banks for repayment of money borrowed totaled $7,500. Cash paid for operating expenses totaled $9,600. Land costing $25,000 was sold for $25,000 cash. Cash paid for dividends to stockholders totaled $3,300. How much was Husky's cash flow from financing activities? A. $72,700 A. $72,700 B. $59,000 B. C. $65,200 C. D. $61,900 $61,900 = $31,700 + $41,000 - $7,500 - $3,300
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #74 #74 Topic Area: The Four Basic Financial Statements: An Overview
75.
Sparty Sparty Corpo Corporat ration ion has has provi provided ded the the follo followin wing g inform informati ation on for for its its most most rece recent nt year year of operati operation: on: Revenues earned were $97,000, of which $9,000 were uncollected at the end of the year. Operating expenses incurred were $39,000, of which $7,000 were unpaid at the end of the year. Dividends declared were $11,000, of which $3,000 were unpaid at the end of the year. Income tax expense is 30% of pretax income. How much net income was reported on Sparty's income statement? A. $32,900 A. $32,900 B. $39,300 B. C. $33,600 C. D. $40,600 $40,600 = ($97,000 - $39,000) (1 - .30)
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #75 #75 Topic Area: The Four Basic Financial Statements: An Overview
76. 76.
Whic Wh ich h of of the the foll follow owin ing g sta state teme ment ntss is is cor corre rect ct?? A. Revenues
are reported on the income statement regardless of whether the customer has paid for the goods or services. B. Expenses are reported within the income statement during the period that they are paid for. C. Net income includes a deduction for dividend dividend payments made to stockholders. D. Net income normally equals the net cash generated by operations. Accrual accounting requires revenues to be reported when they are earned.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #76 #76 Topic Area: The Four Basic Financial Statements: An Overview
77.
During During 2010, 2010, Rock Rock Compa Company's ny's cash cash balance balance increa increased sed from from $79,00 $79,000 0 to $91,300 $91,300.. Rock's Rock's net cash cash flow flow from operating activities was $37,300 and its net cash flow from financing activities was $11,100. How much was Rock's net cash flow from investing activities? A. A A. A net cash flow of $42,900. B. A net cash flow of ($36,100). C. A C. A net cash flow of $60,700. D. A D. A net cash flow of ($60,700). The increase in cash ($91,300 - $79,000) = Net cash flow from operating activities ($37,300) + Net cash flow from investing activities (-$36,100) + Net cash flow from financing activities ($11,100).
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #77 #77 Topic Area: The Four Basic Financial Statements: An Overview
78. 78.
Whic Wh ich h of of the the foll follow owin ing g sta state teme ment ntss is is fal false se?? A. A positive net income results in an increase in retained earnings. B. The ending retained earnings balance from the statement of retained earnings is reported on the balance sheet. C.The C. The change in the cash balance on the statement of cash flows added to the beginning cash balance equals the ending cash balance. D. The dividends reported on the statement of retained earnings are also reported as dividend expense on the income statement. Dividends are not an expense and therefore are not reported on the income statement.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #78 #78 Topic Area: The Four Basic Financial Statements: An Overview
79.
Which Which of the foll followi owing ng is not a cons conseque equence nce to to a company company result resulting ing from from the the issue issue of of their their finan financia ciall statements? A. The effect on the selling price of their stock. B. The providing of information to their competitors. C. The effect on bonus payments to its its employees. D. The providing of information to their auditors. Providing information to their auditors is a step towards the issue o f their financial statements and not a consequence of issuing their financial statements. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Identify Identify the role of generally accepted accounting principles (GAAP) in determining determining the content of financial statements. Libby - Chapter 01 #79 #79 Topic Area: Responsibilities for the Accounting Communication Process
80.
Which Which of of the the follo followin wing g state statement mentss perta pertaini ining ng to to the the audit audit functi function on is is incor incorrec rect? t? The primary responsibility for the information in the financial statements lies with the aud itors. B. The audit report describes the auditor's opinion of the fairness of the financial statements. statements. C. An audit ensures that the financial statements conform to generally accepted accounting principles. D. The auditor doesn't examine all of the transactions an entity incurred.
A.
The primary responsibility for the information in the financial statements lies with the management. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-03 Distinguish the roles of managers and auditors auditors in the accounting communication communication process. Libby - Chapter 01 #80 #80 Topic Area: Management Responsibility and the Demand for Auditing
81.
The Inte Interna rnatio tional nal Accou Accounti nting ng Standa Standards rds Boar Board d has work worked ed to devel develop op global global account accounting ing stan standar dards ds known as A. generally accepted accounting principles. A. generally B. globally B. globally accepted financial standards. C. international financial reporting standards. D. worldwide D. worldwide financial standards. Global convergence of accounting standards is being facilitated by the adoption of International Financial Reporting Standards. These standards are developed by the International Accounting Standards Board. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Identify Identify the role of generally accepted accounting principles (GAAP) in determining determining the content of financial statements. Libby - Chapter 01 #81 #81 Topic Area: Responsibilities for the Accounting Communication Process
82.
An exami examinat nation ion of of the the financi financial al state statement mentss of a busi busines nesss to ensu ensure re that that they they conf conform orm to gener generall ally y accepted accounting principles is called A. a A. a certification. B. an audit. C. a C. a verification. D. a D. a validation. The technical term for the examination exa mination of the financial statements to ensure that they represent what they claim to and conform with generally accepted accounting principles is an audit. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-03 Distinguish the roles of managers and auditors auditors in the accounting communication communication process. Libby - Chapter 01 #82 #82 Topic Area: Management Responsibility and the Demand for Auditing
83. 83.
Whic Wh ich h of of the the foll follow owin ing g bes bestt des descr crib ibes es the the pur purpo pose se of an audit audit?? A. To prove the accuracy of an entity's financial statements. B. To lend credibility to an entity's financial statements. C. To audit every transaction that an entity entered into. D. To establish that a corporation's stock is a sound investment. An audit is an independent independe nt review of an entity's financial statements. The result of an audit is an audit report that lends credibility to these financial statements. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-03 Distinguish the roles of managers and auditors auditors in the accounting communication communication process. Libby - Chapter 01 #83 #83 Topic Area: Management Responsibility and the Demand for Auditing
84. 84.
Why Wh y doe doess a comp compan any y hir hiree ind indep epen ende dent nt audi audito tors rs?? A. To guarantee the accuracy of both annual and quarterly financial statements. B. To verify the accounting accuracy of every transaction transaction entered into. C. To report on the fairness of financial statement presentation. D. The auditors are responsible for the content of the financial statements. The role of auditors is to review the financial statements and issue an opinion on the fairness of these statements. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-03 Distinguish the roles of managers and auditors auditors in the accounting communication communication process. Libby - Chapter 01 #84 #84 Topic Area: Management Responsibility and the Demand for Auditing
85.
Why is the CPA's CPA's role role in in perfo performi rming ng audi audits ts import important ant to our economi economicc syst system? em? A. The auditors provide direct financial advice to potential investors. B. The auditors have the primary responsibility for the information contained in financial statements. statements. C. The auditors issue reports on the accuracy of each financial transaction. D The audit of financial statements helps investors and others to know that they can rely on the . information presented in the financial statements. The CPA conducting the audit, and issuing the report, is independent indepen dent of the firm and therefore allows the users of financial statements to rely on these statements. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-03 Distinguish the roles of managers and auditors auditors in the accounting communication communication process. Libby - Chapter 01 #85 #85 Topic Area: Management Responsibility and the Demand for Auditing
86.
Which Which of the foll followi owing ng is not one one of the thre threee steps steps take taken n by a corpo corporat ration ion to to assure assure the the accur accuracy acy of of its its records? A. Implementing a system of internal controls. B. The hiring of an independent auditor to report on the fairness of the financial statements. C. The hiring of a financial analyst. D. The formation of a committee made up of board of directors' members to oversee ove rsee the integrity of its safeguards utilized. The three steps to ensure the accuracy of records include implementing a system of controls, hiring external auditors, and having a board of directors. A financial analyst does not provide services that help a corporation assure the accuracy of its records. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-03 Distinguish the roles of managers and auditors auditors in the accounting communication communication process. Libby - Chapter 01 #86 #86 Topic Area: Management Responsibility and the Demand for Auditing
87.
Which Which of the the follo followin wing g groups groups has has prima primary ry respo responsi nsibil bility ity for for the the inform informati ation on contai contained ned in in the fina financi ncial al statements? The company's management B. The B. The company's auditors C. The C. The company's investors D. The D. The company's internal auditors
A.
The primary responsibility for the information in the financial statements lies with management. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-03 Distinguish the roles of managers and auditors auditors in the accounting communication communication process. Libby - Chapter 01 #87 #87 Topic Area: Management Responsibility and the Demand for Auditing
88.
Which Which priva private te sect sector or body body was was given given the the primar primary y respon responsib sibili ility ty to determ determine ine deta detaile iled d auditi auditing ng standards? A. Financial Accounting Standards Board A. Financial B. Securities B. Securities & Exchange Commission C. Public Company Accounting Oversight Board D. American Institute of Certified Public Accountants The Public Company Accounting Oversight Board in consultation with the SEC sets standards for the audits of public companies. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-03 Distinguish the roles of managers and auditors auditors in the accounting communication communication process. Libby - Chapter 01 #88 #88 Topic Area: Management Responsibility and the Demand for Auditing
89.
Which Which group group maint maintain ainss the the prof profess ession ional al code of ethics ethics to which which CPAs CPAs must must adher adhere? e? American Institute of Certified Public Accountants B. Financial B. Financial Accounting Standards Board C. Securities C. Securities & Exchange Commission D. Public D. Public Company Accounting Oversight Board
A.
The American Institute of Certified Public Accountants requires all of its members to adhere to a professional code of ethics and professional auditing standards. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-04 Appreciate the importance importance of ethics; reputation; and legal liability liability in accounting. Libby - Chapter 01 #89 #89 Topic Area: Ethics, Reputation, and Legal Liability
90.
Which Which of of the the follo followin wing g is a disad disadvant vantage age of a corp corpora oratio tion n when when compa compared red to a partne partnersh rship? ip? A. The stockholders have limited liability. B. The corporation is treated as a separate legal entity from the stockholders. C. The corporation and its stockholders are subject to double taxation. D. The corporation must account a ccount for the business's transactions separate and apart ap art from those of the owners. A corporation's income is subject to double taxation, it is taxed when it is earned e arned and again when it is distributed to stockholders as dividends. AACSB: Reflective Thinking AICPA BB: Legal Blooms: Remember Difficulty: Easy Learning Objective: Supplement A Libby - Chapter 01 #90 #90 Topic Area: Types of Business Entities
91. 91.
Whic Wh ich h of the the fol follo lowi wing ng sta state teme ment ntss is tru truee about about a sol solee propr proprie ieto tors rshi hip? p? A. The owner and the business are separate legal entities but not separate accounting entities. B. The owner and the business are separate accounting entities but not sepa rate legal entities. C. The owner and the business are separate legal entities and separate accounting entities. D. Most large businesses in this country are organized as sole proprietorships. proprietorships. A sole proprietorship is an unincorporated business owned by one person. Legally, the business and the owner are not separate entities; however, the owner and business are separate accounting ac counting entities. AACSB: Reflective Thinking AICPA BB: Legal Blooms: Remember Difficulty: Easy Learning Objective: Supplement A Libby - Chapter 01 #91 #91 Topic Area: Types of Business Entities
92.
For a busin business ess organi organized zed as a gener general al partne partnersh rship, ip, which which stat stateme ement nt is true? true? A. The owners and the business are separate legal entities. B. Each partner is potentially responsible for the debts of the business. C. Formation of a partnership requires getting a charter from the state of incorporation. D. A partnership is not considered to be a separate accounting entity. Legally, each partner in a general partnership is responsible for the debts of the business. In this case, each general partner has unlimited u nlimited liability. AACSB: Reflective Thinking AICPA BB: Legal Blooms: Remember Difficulty: Easy Learning Objective: Supplement A Libby - Chapter 01 #92 #92 Topic Area: Types of Business Entities
93.
Which Which of of the the follo followin wing g would would not be repo reporte rted d on a state statemen mentt of retain retained ed earn earning ings? s? Dividend payments B. Net B. Net income C. Beginning C. Beginning retained earnings D. Ending D. Ending retained earnings
A.
The statement of retained earnings reports dividends de clared. The statement of cash flows reports dividend payments. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #93 #93 Topic Area: The Four Basic Financial Statements: An Overview
94. 94.
Whic Wh ich h of of the the foll follow owin ing g sta state teme ment ntss is is cor corre rect ct?? A.The A. The statement of retained earnings always reports the same amount of dividend payments payme nts as does the statement of cash flows. B. The statement of cash flows has a relationship with the balance sheet. C.Dividends C. Dividends paid are reported on the statement of cash flows as an operating cash flow and on the income statement as a financing cash flow. D. Net income is reported on the income statement but not on the statement of retained earnings. The change in cash on the statement of cash flows is added to the beginning balance of cash on the balance sheet. The result will equal the end-of-year balance in cash.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #94 #94 Topic Area: The Four Basic Financial Statements: An Overview
95.
Which Which of the foll followi owing ng is not prov provide ided d withi within n the notes notes that that accomp accompany any the the finan financial cial statem statement ents? s? A. A description of the accounting rules applied. B. A description of the terms terms of a lease agreement. C. A description pertaining to a particular line on the financial statements. D. A description of net income for each of the prior three years. A description of net income for previous years is not one of the three basic types of notes that accompany the financial statements.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #95 #95 Topic Area: The Four Basic Financial Statements: An Overview
96.
Which Which of of the the follo followin wing g trans transact action ionss affec affects ts both retain retained ed earn earning ingss and and net net incom income? e? A. The A. The payment of a cash dividend. B. The recording of revenue for services provided. C. The issue of stock in exchange for cash. D. The D. The borrowing of money from a bank. Recording of revenue increases net income which in turn increases retained earnings.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Understand Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #96 #96 Topic Area: The Four Basic Financial Statements: An Overview
97.
Which Which of the the follo followin wing g transa transacti ctions ons affe affects cts both both the the income income stat statemen ementt and the the statem statement ent of cash cash flows? flows? A. Selling stock in exchange for cash. A. Selling B. Declaring B. Declaring and paying a cash dividend. C. Selling a product to a customer which creates an account receivable. D. Paying employee wages as they are earned. Paying an employee wages as they are earned results in an expense being recognized (income statement) and a cash outflow (statement of cash flows).
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #97 #97 Topic Area: The Four Basic Financial Statements: An Overview
98.
Which Which of the foll followi owing ng would would not not be found found withi within n the inves investin ting g sectio section n of the the state statemen mentt of cash cash flow flows? s? A. Cash A. Cash paid to purchase a manufacturing building. B. Cash received from the sale of stock to stockholders. C. Cash received from the sale of manufacturing equipment. D. Cash D. Cash paid to purchase land. Cash received from the sale of stock is a financing activity. Investing activities involve the purchase of the company's productive assets.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #98 #98 Topic Area: The Four Basic Financial Statements: An Overview
99.
Which Which of the foll followi owing ng is primar primarily ily resp respons onsibl iblee for the info informa rmatio tion n provid provided ed in the the financ financial ial statements? Chief Executive Officer B. External B. External Auditors C. Board C. Board of Directors D. Internal D. Internal Accounting Staff
A.
Primary responsibility for the information in the financial statements lies with management. Management is represented by the highest officer of the company and the highest financial officer. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-03 Distinguish the roles of managers and auditors auditors in the accounting communication communication process. Libby - Chapter 01 #99 #99 Topic Area: Management Responsibility and the Demand for Auditing
100. 100.
Which Which of the follo followin wing g doesn't doesn't repre represen sentt a professi professiona onall accounti accounting ng certif certifica icatio tion? n? A. Certified Management Accountant A. Certified B. Certified B. Certified Public Accountant C. Certified C. Certified Internal Auditor D. Certified Tax Accountant There is no professionally recognized accounting certification known as a Certified Tax Accountant. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: Supplement B Libby - Chapter 01 #100 #100 Topic Area: Employment in the Accounting Profession Today
101.
Determine Determine the the missing missing amounts for each independe independent nt case case below. below. Assume Assume the amounts amounts given given are are at the end of the company's first year of operation. Answers will vary
Feedback:
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #101 #101 Topic Area: The Four Basic Financial Statements: An Overview
102.
Gail's Greenhouse, Greenhouse, Inc., Inc., a small retail retail store store which which sells sells house house plants, plants, started started business business on January January 1, 2010. At the end of January, 2010, the following information was available: Answers will vary
Feedback: Requirements: A. Using the above information, prepare the income statement for Gail's Greenhouse for the month ended January 31, 2010. B. What is the amount of cash flows provided by operating activities to be presented on the statement of cash flows?
B. $38,300 - 15,000 + 1,000 = $24,300 or $75,000 - 45,000 - 5,000 - 250 - 150 - 300 = $24,300 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #102 #102 Topic Area: The Four Basic Financial Statements: An Overview
103.
Indicate Indicate on which financial financial statem statement ent you you would would expect expect to find each of of the following. following. If an an item item can be found on more than one statement, list each statement. Answers will vary
Feedback:
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #103 #103 Topic Area: The Four Basic Financial Statements: An Overview
104.
For each each of the the followin following g items items that that appear appear on the the balance balance sheet, sheet, identif identify y each as as an asset asset (A), liability liability (L), or element of stockholders' equity (SE). For any item that would not appear on the balance sheet, write the letter, N. Answers will vary
Feedback:
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #104 #104 Topic Area: The Four Basic Financial Statements: An Overview
105.
Rose Corporation Corporation began operations operations at the the start start of 2010. 2010. During During 2010, it made made cash cash and and credit credit sales sales totaling $500,000 and collected $420,000 in cash from its customers. It purchased inventory costing $250,000, paid $15,000 for dividends and the cost of goods sold was $210,000. The corporation incurred the following expenses during 2010: Answers will vary
Feedback: Requirements: 1. Prepare an income statement showing revenues, expenses, pretax income, income tax expense, and net income for the year ended December 31, 2010. 2. Based on the above information, what is the amount of accounts receivable on the balance sheet prepared as of December 31, 2010? 3. Based on the above information, what is the amount of retained earnings on the balance sheet prepared as of December 31, 2010?
1. $500,000 - 420,000 = $80,000 Accounts receivable at the end of the year. $0 beginning balance + $161,000 net income - $15,000 dividends = $146,000. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #105 #105 Topic Area: The Four Basic Financial Statements: An Overview
106.
Cosmos Corporation Corporation was establ established ished on December December 31, 2010, 2010, by a group group of investors investors who investe invested d a total of $1,000,000 for shares of the new corporation's stock. During the month of January, 2011, Cosmos provided services to customers for which the total reve nue was $100,000. Of this amount, amo unt, $10,000 had not been collected by the end of January. Cosmos recorded salary expense of $20,000, of which 90% had been paid by the end of the month; rent expense of $5,000, which had been paid on January 1; and other expenses of $12,000, which had been paid by check. On January 31, 2011, Cosmos purchased a van by paying cash of $30,000. There were no other transactions that affected cash. Answers will vary Feedback: Requirements: 1. In which section of the statement of cash flows would the amount of cash paid for rent be reported? 2. In which section of the statement of cash flows would the amount of cash paid for the van purchase be reported? 3. By how much did Cosmos's cash increase or decrease during January, 2011? 4. What was Cosmos's net income or net loss (after income tax expense) for the month of January, 2011? The income tax rate was 30%. 5. Explain why the net increase or decrease in cash for a business generally will be different than the net income, or net loss, for the same period.
AACSB: Analytic, Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #106 #106 Topic Area: The Four Basic Financial Statements: An Overview
107. 107.
Parker Parker Pool Pool Supply Supply,, Inc. repor reported ted the the followi following ng items items for for the year year ended ended Decemb December er 31, 2010: 2010: Answers will vary
Feedback: Requirement: Prepare an income statement for the year ended December 31, 2010.
Feedback: AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #107 #107 Topic Area: The Four Basic Financial Statements: An Overview
108.
National National Shops, Shops, Inc. reporte reported d the following following amounts amounts on its balance balance sheet sheet as of December December 31, 2010: 2010: Answers will vary
Feedback: Requirements: 1. What is the amount of National's total assets as of December 31, 2010? 2. Identify the items listed above that are liabilities. 3. What is the amount of National's retained earnings as of December 31, 2010? 4. Prepare a balance sheet for National as of December 31, 2010. 5. National wishes to purchase merchandise from your company on account. The amount of the purchases would probably be about $10,000 per month, and the terms would require National to make payment in full within 30 days. Would you recommend that your company grant credit to National under these terms? Explain the reasoning for your response.
AACSB: Analytic, Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #108 #108 Topic Area: The Four Basic Financial Statements: An Overview
109.
During 2010, Winterset Winterset Company performed performed service servicess for for which which customer customerss paid paid or promised promised to to pay $587,000. Of this amount, $552,000 had been collected by year-end. Winterset paid $340,000 in cash for employee wages and owed the employees $15,000 at the end of the year for work that had been done but had not paid for. Winterset paid interest expense of $3,000 and $195,000 for other service expenses. The income tax rate was 35%, and income taxes had not yet been paid at the end of the year. Winterset declared and paid dividends of $20,000. There were no other transactions that affected cash. Answers will vary Feedback: Requirements: 1. What was the amount of the increase or decrease in cash during the year? 2. Prepare an income statement for Winterset for the year. 3. At the beginning of 2010, Winterset's retained earnings were $90,000. Prepare a statement of retained earnings.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #109 #109 Topic Area: The Four Basic Financial Statements: An Overview
110.
Alfred Alfred Company Company manufact manufactures ures men's clothing. clothing. During During 2010, the company company reported reported the the followi following ng items items that affected cash. Indicate whether each e ach of these items is a cash flow from operating activities (O), investing activities (I), or financing activities (F). Answers will vary
Feedback: Purchased equipment by paying cash: I Collected cash on account from customers: O Paid dividends to stockholders: F Paid cash for supplies: O Paid suppliers for fabric: O Borrowed money from bank on a long-term note: F Paid interest to bank on the note: O Paid wages to employees: O Sold shares of stock to new stockholders: F AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #110 #110 Topic Area: The Four Basic Financial Statements: An Overview
111.
Fulton Company was establ established ished at the the beginning beginning of 2010 2010 when when several several investors investors paid a total of $200,000 to purchase Fulton stock. No additional investments in stock were made during the year. By December 31, 2010, Fulton had cash on hand of $45,000, office equipment (net) of $40,000, inventories of $156,000, and accounts payable of $10,000. Sales for the year were $812,000. Of this amount, customers still owed $20,000. Fulton paid dividends of $25,000 to its stockholders during 2010. Answers will vary Feedback: Requirements: 1. Based on the information above, prepare a balance sheet for Fulton Company as of December 31, 2010. In the process of preparing the balance sheet, you must calculate the ending balance in retained earnings. 2. Prepare a statement of retained earnings for the year ended December 31, 2010. 3. What was the amount of Fulton's net income for 2010? 4. Was Fulton successful during its first year in operation?
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Hard Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #111 #111 Topic Area: The Four Basic Financial Statements: An Overview
112.
For Glad Glad Rags Rags Shops, Shops, the followi following ng informat information ion is is available available for the year year ended ended December December 31, 2010: 2010: Answers will vary
Feedback: Dividends declared 10,000 The income tax rate is 30%. Requirement: Prepare an income statement for Glad Rags Shops.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #112 #112 Topic Area: The Four Basic Financial Statements: An Overview
113.
Baseline Baseline Corporat Corporation ion was formed formed two two years years ago to to manufactu manufacture re fitnes fitnesss equipment equipment.. It has been profitable and is growing rapidly. It currently has 15 0 stockholders and 90 employees; most of the employees own at least a few shares of Baseline's stock. The company has received financing from two banks. It will sell additional shares of stock within the n ext three months and will also seek additional loans and hire new employees to support its continued growth. Answers will vary Feedback: Requirement: 1. Explain who relies on the information in financial statements prepared by Baseline Corporation. 2. Why is compliance with generally accepted accounting principles and accuracy in accounting important for Baseline? A new accountant who tried to prepare Baseline's financial statements at the end of the current year made several errors. For each of the following items, indicate how the income statement and balance sheet are affected by the error and the nature of the effect. (For example, an error might cause revenues and net income on the income statement and retained earnings and assets on the balance sheet to be overstated). Ignore the effects of income taxes. The company had sales for cash of $3,000,000. It also had sales on account of $1,800,000 that had been collected by the end of the year, and sales on account of $200,000 that are expected to be collected early the following year. The accountant reported total sales revenue of $4,800,000. The company had total inventories of $600,000 at the end of the year. Of this amount, inventory reported at $30,000 was obsolete and will have to be scrapped. The balance sheet prepared by the accountant showed total inventories of $600,000. The company has a bank loan for which interest expense during the year of $10,000 will be paid early in January of the next year. The accountant recorded neither the interest expense nor the interest payable. An insurance policy was listed as an asset of $6,000 at the beginning of the year. The entire amount of the policy was for the current year and the policy has expired. The accountant took no action to recognize the expiration of the policy. 1. Various external decision makers rely on the financial statements of a corporation. For Baseline, Ba seline, these decision makers include the bankers who have loaned money to the company. These creditors would monitor the performance of Baseline to estimate the likelihood that Baseline will be able to repay existing loans when they come due, and to decide whether to make additional loans to Baseline in the future. Current stockholders would want to review Baseline's financial statements to decide whether they wanted to continue to own Baseline's stock. Potential stockholders and creditors c reditors would use the information to decide whether they wanted to purchase Baseline's stock or loan money to the company in the future. Baseline anticipates hiring additional workers in the near future; potential employees might use information in the financial statements to evaluate the company as an employer. 2. Compliance with generally accepted accounting principles and accuracy in accounting are important to Baseline because they are important to the people who use Baseline's financial statements. To maintain the credibility of its financial statements, Baseline must comply with GAAP and must ensure the accuracy of its accounting records. 3. On the income statement, revenues and net income are understated by $200,000. On the balance sheet, accounts receivable and retained earnings are understated by $200,000. On the balance sheet, inventory and retained earnings are overstated by $30,000. On the income statement, expenses are understated and the net income is overstated. On the income statement, expenses are understated and net income is overstated by $10,000. On the balance sheet, interest payable is understated and retained earnings are overstated by $10,000. On the balance sheet, prepaid insurance and retained earnings are overstated by $6,000. On the income statement, expenses are understated and net income is overstated by $6,000.
AACSB: Analytic, Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply, Knowledge Knowledge Difficulty: Hard Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #113 #113
114.
Larson Company ends its recent year of operati operations ons with $3,500,000 $3,500,000 in in retained retained earnings. earnings. During During the year Larson's net income exceeded its dividend declarations by $200,000. Larson's dividend declarations were $25,000 greater than the dividend payments. How much was Larson Company's beginning retained earnings? Answers will vary Feedback: Beginning retained earnings = $3,300,000 = $3,500,000 - $200,000
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #114 #114 Topic Area: The Four Basic Financial Statements: An Overview
115.
As of January January 1, 2010, a corporati corporation on had assets assets of $340,000 and liabili liabilities ties of $120,000. $120,000. During During 2010, 2010, assets increased $45,000 and liabilities increased $15,000. What was stockholders' equity on December 31, 2010? Answers will vary Feedback: Beginning stockholders' equity = $220,000 = $340,000 - $120,000 Ending stockholders' equity = $250,000 = $220,000 + $45,000 - $15,000
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #115 #115 Topic Area: The Four Basic Financial Statements: An Overview
116.
Laker Company Company has provided provided the the follow following ing information information for its most recent year of operati operation: on: Answers will vary Feedback: Cash collected from customers totaled $99,300. Cash borrowed from banks totaled $42,700. Cash paid to employees totaled $23,300. Cash paid for interest totaled $3,100. Cash received from selling an investment in Husky stock totaled $73,000. Cash payments to banks for repayment of money borrowed totaled $9,700. Cash paid for operating expenses totaled $11,200. Land costing $75,000 was sold for $75,000 cash. Cash paid for dividend payments to stockholders totaled $7,700. How much was Laker's net cash c ash flow from financing activities? Net cash flow from financing activities = $25,300 = $42,700 - $9,700 - $7,700
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #116 #116 Topic Area: The Four Basic Financial Statements: An Overview
117.
Laker Company Company has provided provided the the follow following ing information information for its most recent year of operati operation: on: Cash collected from customers totaled $99,300. Cash borrowed from banks totaled $42,700. Cash paid to employees totaled $23,300. Cash paid for interest totaled $3,100. Cash received from selling an investment in Husky stock totaled $73,000. Cash payments to banks for repayment of money borrowed totaled $9,700. Cash paid for operating expenses totaled $11,200. Land costing $75,000 was sold for $75,000 cash. Cash paid for dividend payments to stockholders totaled $7,700. How much was Laker's net cash c ash flow from investing activities? Answers will vary Feedback: Net cash flow from investing activities = $148,000 = $73,000 + $75,000
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #117 #117 Topic Area: The Four Basic Financial Statements: An Overview
118.
Laker Company Company has provided provided the the follow following ing information information for its most recent year of operati operation: on: Answers will vary Feedback: Cash collected from customers totaled $99,300. Cash borrowed from banks totaled $42,700. Cash paid to employees totaled $23,300. Cash paid for interest totaled $3,100. Cash received from selling an investment in Husky stock totaled $73,000. Cash payments to banks for repayment of money borrowed totaled $9,700. Cash paid for operating expenses totaled $11,200. Land costing $75,000 was sold for $75,000 cash. Cash paid for dividend payments to stockholders totaled $7,700. How much was Laker's net cash c ash flow from investing activities? Net cash flow from operating activities = $61,700 = $99,300 - $23,300 - $3,100 - $11,200
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #118 #118 Topic Area: The Four Basic Financial Statements: An Overview
119. 119.
During During 2010, 2010, Rock Rock Company' Company'ss cash balan balance ce increas increased ed from from $57,000 $57,000 to $94,30 $94,300. 0. Rock's Rock's net cash cash flow flow from operating activities was $26,900 and its net cash flow from financing activities was $13,700. How much was Rock's net cash flow from investing activities? Answers will vary Feedback: Net cash flow from investing activities (-$3,300) = The increase in cash ($94,300 ($94,3 00 - $57,000) Net cash flow from operating activities ($26,900) - Net cash flow from financing activities ($13,700).
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Measurement Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #119 #119 Topic Area: The Four Basic Financial Statements: An Overview
120. 120.
Moss Moss Co Comp mpany any has prov provid ided ed the the fol follo lowi wing ng dat data: a: Answers will vary Feedback: 2010 revenues were $87,500. 2010 net income was $43,900. Dividends declared and paid by Moss during 2010 totaled $15,700. Total assets on December 31, 2010 were $227,000. Total stockholders' equity on December 31, 2010 was $133,000. Contributed capital on December 31, 2010 was $93,000. What was the beginning retained earnings balance? Stockholders' equity ($133,000) = Contributed capital ($93,000) + Ending retained earnings ($40,000). Beginning retained earnings ($12,100) = Ending retained earnings ($40,000) - Net income ($87,500 $43,900) + Dividends ($15,700).
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Apply Difficulty: Medium Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #120 #120 Topic Area: The Four Basic Financial Statements: An Overview
121.
Describe Describe the roles of the the Securiti Securities es & Exchange Exchange Commissi Commission on and The Financi Financial al Accountin Accounting g Standards Standards Board with respect to the development of Generally Accepted Accounting Principles. Answers will vary Feedback: The SEC was created though the Securities Acts of 1933 and 1934 to develop accounting guidelines for publically traded companies. The SEC has given the FASB the authority to develop GAAP. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Identify Identify the role of generally accepted accounting principles (GAAP) in determining determining the content of financial statements. Libby - Chapter 01 #121 #121 Topic Area: Responsibilities for the Accounting Communication Process
122. 122.
Desc Descri ribe be the the eleme element ntss of the the balanc balancee sheet sheet equa equati tion. on. Answers will vary Feedback: The balance sheet equation states that assets equal liabilities plus stockholders' equity. Assets are a firm's economic resources such as cash, supplies, inventory, and equipment. Liabilities are a firm's debts such as accounts payable and notes payable. Stockholders' equity consists of contributed capital and retained earnings.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #122 #122 Topic Area: The Four Basic Financial Statements: An Overview
123. 123.
Descri Describe be the role role of a compa company's ny's manag manageme ement nt and the the externa externall auditor auditorss in the accoun accountin ting g communication process. Answers will vary Feedback: Management is primarily responsible for the c ontent of their company's financial reporting. The external auditors' opinion reports on the fairness of the financial statements while ensuring that they represent what they claim to and conform to GAAP. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-03 Distinguish the roles of managers and auditors auditors in the accounting communication communication process. Libby - Chapter 01 #123 #123 Topic Area: Management Responsibility and the Demand for Auditing
124.
What is is the objective objective of the cash cash flow statement? statement? Describe Describe the three cash flow flow classif classificati ications ons that that are reported within the cash flow statement. Answers will vary Feedback: The objective of the cash flow statement is to explain the change in the cash balance during a particular time period. The operations section describes the cash flows that resulted from normal profit seeking activities. The investing section describes cash flows resulting from acquisition and disposition of long-term assets and investments. The financing section d escribes the cash flows resulting from issuance and retirement of long-term debt and equity.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #124 #124 Topic Area: The Four Basic Financial Statements: An Overview
125.
How is is net income in the the income income statem statement ent differe different nt than than cash cash flow flow from from operatio operations ns in in the cash flow statement? Answers will vary Feedback: Net income is based on the accrual concept and isn't based on cash flows. Cash flow from operations is cash flow based rather than accrual based.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Recognize the information information conveyed in each of the four basic basic financial statements and the way that it is used by by different decision makers (investors; creditors; and managers). Libby - Chapter 01 #125 #125 Topic Area: The Four Basic Financial Statements: An Overview
ch1 Summary Category
# of Questions
AACSB: Analytic
33
AACSB: Analytic, Reflective Thinking
3
AACSB: Reflective Thinking
89
AICPA BB: Critical Thinking
1 17
AICPA BB: Legal
8
AICPA FN: Decision Modeling
1
AICPA FN: Reporting
84
AICPA FN: Reporting, Measurement
36
AICPA FN: Risk Analysis
1
Blooms: Apply
36
Blooms: Apply, Knowledge
1
Blooms: Remember
75
Blooms: Understand
13
Difficulty: Easy
70
Difficulty: Hard
13
Difficulty: Medium
42
Learning Objective: 01-01 Recognize the information conveyed in each of the four basic financial statements statements and the way that it is used by different decision makers (investors; creditors; and managers).
99
Learning Objective: 01-02 Identify the role of generally accepted accounting principles (GAAP) in determining the content of financial statements.
7
Lear Learni ning ng Obj Objec ecti tive ve:: 01-03 01-03 Dist Distin ingui guish sh the the rol roles es of of mana manage gers rs and and audi audito tors rs in in the the acco account untin ing g comm communi unica cati tion on pro proce cess ss..
12
Lea Learni rning Obje Objecctive tive:: 01-0 01-04 4 Appr Appreeciate iate the impo import rtan ancce of ethi ethiccs; repu reputtatio ation; n; and lega legall liabi iabillity ity in accou ccount ntin ing. g.
2
Learning Objective: Supplement A
4
Learning Objective: Supplement B
1
Libby - Chapter 01
12 5
Topic Area: Employment in the Accounting Profession Today
1
Topic Area: Ethics, Reputation and Legal Liability
1
Topic Area: Ethics, Reputation, and Legal Liability
1
Topic Area: Management Responsibility and the Demand for Auditing
12
Topic Area: Responsibilities for the Accounting Communication Process
7
Topic Area: The Four Basic Financial Statements: An Overview
97
Topic Area: Types of Business Entities
4
Topic Area: Understanding Business
1
Topic Area: Understanding the Business
1