Accounting 1

Which of the following is the most appropriate definition of accounting information?

A. Electronic collection and organization of vast amounts of financial information
B. A means of collecting information
C. The interconnected network of subsystems necessary to operate a business
D. The information system that identifies, records, and communicates the economic events of an organization to interested users

D

Net income will result during a time period when

A. assets exceed liabilities.
B. assets exceed revenues.
C. revenues exceed expenses.
D. expenses exceed revenues.

C

Which of the following would not appear on the income statement?

A. Dividends paid
B. Net income
C. Service revenue
D. Interest expense

A Dividends paid are shown on the retained earnings statement and the statement of cash flows because it relates to ownership rather than operations.

Chris’s Maid Service began the year with total assets of $120,000 and stockholders’ equity of $40,000. During the year the company earned $120,000 in net income and paid $15,000 in dividends. Total assets at the end of the year were $225,000. How much are total liabilities at the end of the year?
A. $90,000
B. $105,000
C. $80,000
D. $110,000

C (i.e., Assets = Liabilities + Stockholders’ equity)

Which financial statement presents information as of a specific point in time?

A. Retained earnings statement
B. Statement of cash flows
C. Income statement
D. Balance sheet

D

The balance sheet
A. summarizes the changes in total equity for a specific period of time.
B. presents the revenues and expenses for a specific period of time.
C. reports the assets, liabilities, and stockholders’ equity at a specific date.
D. reports the changes in assets, liabilities, and stockholders’ equity over a period of time.

C

If total liabilities decreased by $15,000 and total stockholders’ equity decreased by $5,000 during a period of time, then total assets must have changed by what amount and direction during that same period?

A. $10,000 increase
B. $10,000 decrease
C. $15,000 decrease
D. $20,000 decrease

D The accounting equation: Assets = Liabilities + Stockholders’ Equity If liabilities decreased by $15,000 and stockholders’ equity decreased by $5,000 then the right side of the accounting equation decreased by $20,000. Therefore, assets must have decreased by $10,000 to keep the accounting equation in balance [i.e., ($15,000) + (5,000) = ($20,000)].

The sole proprietorship form of business organization

A. must have at least two owners in most states.
B. combines the records of the business with the personal records of the owner.
C. generally receives favorable tax treatment relative to a corporation.
D. is classified as a separate legal entity.

C Because sole proprietorships have the ability to report business entity gains on their personal income tax returns, both sole proprietorships and partnerships have a tax advantage over the corporation.

Which forms of business organization are considered to be separate accounting entities?

A. Only corporations
B. Sole proprietorships, corporations, and partnerships
C. Partnerships and corporations only
D. Sole proprietorships and partnerships only

B

A company should report cash paid to employees as wages on its statement of cash flows as a

A. financing activity.
B. operating activity.
C. marketing activity.
D. investment activity.

B

In terms of the principal types of business activities, paying salaries expense is an example of

A. investing activities.
B. advertising activities.
C. operating activities.
D. financing activities

C Since paying salaries is usually part of the everyday operations of the company, it is part of operating activities.

The payment of dividends is an example of a(n)

A. Investing activity.
B. Delivery activity.
C. Financing activity.
D. Operating activity.

C

The financial statements for Joanna Corporation contained the following account information:
Accounts receivable, $15,000
Sales revenue, $90,000
Cash, $25,000
Salaries and wages expense, $30,000
Rent expense, $10,000
How much was Joanna Corporation’s net income?

A. $65,000
B. $80,000
C. $55,000
D. $50,000

D Net income = Sales revenue – Salaries and wages expense – Rent expense Net income = $90,000 – 30,000 – 10,000 = $50,000.

Which of the following is not an external user of accounting data?

A. Chief Financial Officer
B. Customers
C. Economic planners
D. Labor unions

A Since the CFO is within the organization and has access to information not released to the public, he or she is an internal user of accounting data.

Which of the following best describes stockholders’ equity?

A. Stockholders’ equity are the economic resources of the firm.
C. Stockholders’ equity are the claims of owners.
D. Stockholders’ equity is the difference between revenues and expenses.

C Stockholders’ equity represents claims of owners. Assets are the resources owned by the firm and liabilities are the claims of creditors against the firm’s assets.

The segment of the annual report that presents an opinion regarding the fairness of the presentation of the financial position and results of operations is/are the

A. auditor’s opinion.
B. financial statements.
C. income statement.
D. balance sheet.

A

An annual report includes all of the following except

A. a listing of all of the stockholders.
B. a management discussion and analysis section.
C. an auditor’s report.
D. notes to the financial statements.

A

In which forms of business organization are the owners personally liable for all the debts of the business?

A. Sole proprietorships and partnerships
B. All of the answer choices are correct
C. Sole proprietorships and corporations
D. Partnership and corporation

A

The ending balance of the Retained Earnings account appears on

A. both the retained earnings statement and the balance sheet.
B. the income statement and the retained earnings statement.
C. the balance sheet only.
D. the retained earnings statement only.

A

What section of a cash flows statement shows the amount of cash spent on new equipment during the most recent accounting period?

A. The financing section
B. The property section
C. The operating section
D. The investing section

D The investing section of the statement of cash flows provides information about property, plant, and equipment accounts.

Paying interest expense and receiving interest revenue are both examples of

A. Delivery activities.
B. Operating activities.
C. Investing activities.
D. Financing activities.

B Since paying interest and receiving interest revenue are usually part of the everyday operations of the company, they are operating activities.

Which of the following is an example of a financing activity?

A. Issuing shares of common stock
B. Buying delivery equipment
C. Buying inventory
D. Selling goods on account

A

Which section of the annual report presents highlights of favorable or unfavorable trends and identifies significant events and uncertainties affecting a company’s ability to pay near-term obligations, and a company’s ability to fund operations and expansion?

A. Management discussion and analysis
B. Financial statements
C. Auditor’s report
D. Notes to the financial statements

A