exam 1

Kimmel, Weygandt & Kieso - Sample Exam 1

Name: __________________________ Date: _____________

1. Which financial statement would best indicate whether the company relies on debt orstockholders' equity to finance its assets?A) Statement of Cash FlowsB) Retained Earnings StatementC) Income StatementD) Balance Sheet

2. Stockholders' equityA) is usually equal to cash on hand.B) is equal to liabilities and retained earnings.C) includes retained earning and common stock.D) is shown on the income statement.

3. Which of the following activities involves collecting the necessary funds to supportthe business?A) OperatingB) InvestingC) FinancingD) Delivering

4. Issuing shares of stock in exchange for cash is an example of a(n)A) delivering activity.B) investing activity.C) financing activity.D) operating activity.

5. Which of the following is not a principal type of business activity?A) OperatingB) InvestingC) FinancingD) Delivering

6. Which of the following is not a common way that managers use the balance sheet?A) To analyze the balances of assets, liabilities, and stockholders' equity throughout

the accounting periodB) To determine if the cash balance is sufficient for future needsC) To analyze the balance between debt and common stock financingD) To analyze the balance of accounts receivable on the last day of the accounting

period


7. Ashton Company began the year with retained earnings of $210,000. During theyear, the company recorded revenues of $300,000, expenses of $228,000, and paiddividends of $24,000. What was Ashton's retained earnings at the end of the year?A) $306,000B) $258,000C) $486,000D) $282,000

8. Net income will result during a time period when:A) assets exceed liabilities.B) assets exceed revenues.C) expenses exceed revenues.D) revenues exceed expenses.

9. An annual report includes all of the following exceptA) management discussion and analysis section.B) notes to the financial statements.C) an auditor's report.D) salary information for all the executives.

10. Stockholders' equity can be described as claims ofA) creditors on total assets.B) owners on total assets.C) customers on total assets.D) debtors on total assets.

11. Jennner Corporation began the year with retained earnings of $155,000. During theyear, the company issued $210,000 of common stock, recorded expenses of$600,000, and paid dividends of $40,000. If Jenner's ending retained earnings was$165,000, what was the company's revenue for the year?A) $610,000B) $650,000C) $820,000D) $860,000

12. The balance sheetA) summarizes the changes in retained earnings for a specific period of time.B) reports the changes in assets, liabilities, and stockholders' equity over a period of

time.C) reports the assets, liabilities, and stockholders' equity at a specific date.D) presents the revenues and expenses for a specific period of time.


13. The financial statement that summarizes the changes in retained earnings for aspecific period of time is theA) balance sheet.B) income statement.C) statement of cash flows.D) retained earnings statement.

14. If the retained earnings account decreases from the beginning of the year to the endof the year, thenA) net income is less than dividends.B) there was a net income and no dividends.C) additional investments are less than net losses.D) net income is greater than dividends.

15. Why are financial statement users interested in the statement of cash flows?A) It is the easiest financial statement to evaluate.B) It provides information about an important company resource.C) It is the first statement that is presented to users.D) It helps users decide whether assets such as office equipment should be replaced.

16. Which of the following is not a satisfactory statement of the accounting equation?A) Assets = Stockholders' Equity – Liabilities.B) Assets = Liabilities + Stockholders' Equity.C) Assets - Liabilities = Stockholders' Equity.D) Assets - Stockholders' Equity = Liabilities.

17. Payments to stockholders are calledA) expenses.B) liabilities.C) dividends.D) distributions.

18. Which type of corporate information is not available to investors?A) dividend historyB) forecast of cash needs for the upcoming yearC) cash provided by investing activitiesD) beginning cash balance

19. Most business enterprises in the United States areA) proprietorships and partnerships.B) partnerships.C) corporations.D) government units.


20. A small neighborhood barber shop that is operated by its owner would likely beorganized as aA) joint venture.B) partnership.C) corporation.D) proprietorship.

21. Edwards Company recorded the following cash transactions for the year:Paid $45,000 for salaries.Paid $20,000 to purchase office equipment.Paid $5,000 for utilities.Paid $2,000 in dividends.Collected $75,000 from customers.What was Edwards' net cash provided by operating activities?A) $25,000B) $5,000C) $30,000D) $23,000

22. Which of the following financial statements is concerned with the company at apoint in time?A) Balance sheet.B) Income statement.C) Retained Earnings statement.D) Statement of cash flows.

23. Management's views on the company's short-term debt paying ability, expansionfinancing, and results of operations are found in theA) auditor's report.B) management discussion and analysis section.C) notes to the financial statements.D) president's state of the company report.

24. Which of the following clarifies information presented in the financial statements, aswell as expanding upon it where additional detail is needed?A) Auditor's reportB) Management discussion and analysis sectionC) Notes to the financial statementsD) President's state of the company report

Use the following to answer question 25:

Claire's Accessory Shop started the year with total assets of $70,000 and total liabilities of$40,000. During the year the business recorded $110,000 in revenues, $55,000 in expenses,and dividends of $20,000.


25. Stockholders' equity at the end of the year wasA) $60,000.B) $55,000.C) $65,000.D) $35,000.

26. Adherence to the procedure of choosing the accounting method that will be leastlikely to overstate assets and income is an example of the constraint ofA) relevance.B) reliability.C) conservatism.D) comparability.


Benton Office SuppliesBalance Sheet

December 31, 2007

Cash $ 65,000 Accounts Payable $ 70,000Prepaid Insurance 30,000 Salaries Payable 10,000Accounts Receivable 50,000 Mortgage Payable 90,000Inventory 70,000 Total Liabilities $160,000Land held for investment 75,000Land 90,000Building $100,000 Common Stock $120,000

Less Accumulated Retained Earnings 250,000Depreciation (20,000) 80,000 Total stockholders' equity $370,000

Trademark 70,000 Total Liabilities andTotal Assets $530,000 Stockholders' Equity $530,000

27. The total dollar amount of assets to be classified as investments isA) $0.B) $150,000.C) $75,000.D) $180,000.

28. Long-term creditors are usually most interested in evaluatingA) liquidity and profitability.B) consistency and profitability.C) liquidity and solvency.D) consistency and solvency.



Cain Auto SuppliesBalance Sheet

December 31, 2007




29. The total dollar amount of assets to be classified as investments isA) $0.B) $155,000.C) $80,000.D) $185,000.

30. Which of the following is a measure of liquidity?A) Working capitalB) Profit marginC) Earnings per shareD) Debt to equity ratio


Simpson Corporation has current assets of $1,250,000 and current liabilities of $750,000.

31. If they pay $250,000 of their accounts payable what will their new current ratio be?A) 2.0:1B) 1.7:1C) 2.5:1D) 1.25:1




December 31, 2007




32. The total dollar amount of assets to be classified as property, plant, and equipment isA) $335,000.B) $255,000.C) $205,000.D) $165,000.

33. Which of the following would not be classified as a long-term liability?A) Current maturities of long-term debtB) Bonds payableC) Mortgage payableD) Lease liabilities

34. An intangible assetA) derives its value from the rights and privileges it provides the owner.B) is worthless because it has no physical substance.C) is converted into a tangible asset during the operating cycle.D) cannot be classified on the balance sheet because it lacks physical substance.


Current assets $ 7,000 Net income $ 12,000Current liabilities 4,000 Stockholders' equity 27,000Average assets 40,000 Total liabilities 9,000Total assets 30,000

Average common shares outstanding was 10,000


35. What is the total amount of working capital?A) $1,000B) $7,000C) $2,000D) $3,000

36. The time period assumption statesA) the business will remain in operation for the foreseeable future.B) the life of a business can be divided into artificial time periods and that useful

reports covering those periods can be prepared.C) every economic entity can be separately identified and accounted for.D) only those things that can be expressed in money are included in the accounting

records.


Acme Auto SuppliesBalance Sheet

December 31, 2007




37. The total dollar amount of assets to be classified as current assets isA) $220,000.B) $150,000.C) $300,000.D) $180,000.

38. Which of the following is not a current liability?A) Wages payableB) Accounts payableC) Taxes payableD) Bonds payable


39. Dividends appear onA) the retained earnings statement only.B) the income statement only.C) both the retained earnings statement and the balance sheet.D) the balance sheet only.

40. The going concern assumption underlies theA) cost principle.B) monetary unit assumption.C) time period assumption.D) full disclosure principle.

41. A useful measure of solvency is theA) current ratio.B) earnings per share.C) return on assets ratio.D) debt to total assets ratio.

42. What organization issues U.S. accounting standards?A) Security Exchange Commission.B) International Accounting Standards Committee.C) International Auditing Standards Committee.D) Financial Accounting Standards Board.



December 31, 2007





43. The total amount of working capital isA) $205,000.B) $125,000.C) $50,000.D) $80,000.


Benton Office SuppliesBalance Sheet

December 31, 2007




44. The total dollar amount of assets to be classified as property, plant, and equipment isA) $320,000.B) $170,000.C) $245,000.D) $190,000.

45. Office equipment is classified on the balance sheet asA) a current asset.B) property, plant, and equipment.C) an intangible asset.D) a long-term investment.

46. Which financial statement is used to determine cash generated from operations?A) income statementB) statement of operationsC) statement of cash flowsD) retained earnings statement


47. It is not true that current assets are resources that are expected to beA) realized in cash within one year.B) sold within one year.C) consumed within one year.D) acquired within one year.

48. What is the order in which assets are generally listed on a classified balance sheet?A) current and long-termB) current; property, plant and equipment; long-term investments; intangiblesC) current; property, plant and equipment; intangibles; long-term investmentsD) current; long-term investments; property, plant and equipment, intangibles

49. In a classified balance sheet, assets are usually classified as:A) current assets; long-term assets; property, plant, and equipment; and intangible

assets.B) current assets; long-term investments; property, plant, and equipment; and

common stocks.C) current assets; long-term investments; tangible assets; and intangible assets.D) current assets; long-term investments; property, plant, and equipment; and

intangible assets.

50. Which of the following is not an alternative means of expressing ratio relationships?A) proportionB) qualitativeC) rateD) percentage

51. The procedure of transferring journal entries to the ledger accounts is calledA) journalizing.B) analyzing.C) reporting.D) posting.

52. During 2007, its first year of operations, Fran's Bakery had revenues of $40,000 andexpenses of $22,000. The business paid cash dividends of $12,000. What is thebalance in Retained Earnings at December 31, 2007?A) $0.B) $12,000 debit.C) $6,000 credit.D) $18,000 credit.


53. DebitsA) increase both assets and liabilities.B) decrease both assets and liabilities.C) increase assets and decrease liabilities.D) decrease assets and increase liabilities.

54. In recording accounting transactions, evidence that a transaction has taken place isobtained fromA) source documents.B) the Internal Revenue Service.C) the public relations department.D) the SEC.

55. Which of the following is not part of the recording process?A) Analyzing transactions.B) Preparing a trial balance.C) Entering transactions in a journal.D) Posting journal entries.

56. Transactions in a journal are initially recorded inA) account number order.B) dollar amount order.C) alphabetical order.D) chronological order.

57. Which of the following accounts probably would be listed before the others in achart of accounts?A) Accumulated depreciation—BuildingsB) Insurance expenseC) DividendsD) Notes Payable

58. The sale of an asset on credit for what it costA) increases assets and liabilities.B) decreases assets and liabilities.C) leaves total assets unchanged.D) decreases assets and increases liabilities.

59. Management could determine the amounts due from customers by examining whichledger account?A) Service RevenueB) Accounts PayableC) Accounts ReceivableD) Supplies


60. A journal:A) contains only asset and liability accounts.B) is a collection of the entire group of accounts maintained by a company.C) provides a chronological record of transactions.D) should show accounts in alphabetical order.

61. A revenue accountA) is increased with a debit.B) is decreased with a credit.C) is increased with a credit.D) has a normal balance of a debit.

62. Evidence that would not help with determining the effects of a transaction on theaccounts would be a(n)A) cash register sales tape.B) bill.C) advertising brochure.D) check.

63. The normal balance of any account is theA) left side.B) right side.C) side which increases that account.D) side which decreases that account.

64. If a company issues common stock for $25,000 and uses $20,000 of the cash topurchase a truck,A) Assets will be increased by $5,000.B) Equity will be reduced by $25,000.C) Assets will be increased by $25,000.D) Assets will be unchanged.

65. After a business transaction has been analyzed and entered in the book of originalentry, the next step in the recording process is to transfer the information toA) the company's bank.B) stockholders' equity.C) ledger accounts.D) financial statements.

66. A list of accounts and their balances at a given time is called a(n)A) journal.B) posting.C) trial balance.D) income statement.


67. Are advanced receipts from customers treated as revenue at the time of receipt?Why or why not?A) Yes, they are treated as revenue at the time of receipt because the company has

access to the cashB) No, the amount of revenue cannot be adequately determined until the company

completes the work.C) Yes, The intent of the company is to perform the work and the customer is

confident that the services will be completed.D) No, revenue cannot be recognized until the work is performed.

68. An investment by the stockholders in a business increasesA) assets and stockholders' equity.B) assets and liabilities.C) liabilities and stockholders' equity.D) assets only.

69. Which of the following accounts is increased with a credit?A) Supplies expenseB) SuppliesC) SalesD) Dividends

70. Receiving payment of a portion of Accounts Receivable willA) not affect total assets.B) increase liabilities.C) increase stockholders' equity.D) decrease net income.

71. A paid dividendA) decreases assets and stockholders' equity.B) increases assets and stockholders' equity.C) increases assets and decreases stockholders' equity.D) decreases assets and increases stockholders' equity.

72. A ledger:A) contains only asset and liability accounts.B) is a collection of the entire group of accounts maintained by a company.C) provides a chronological record of transactions.D) should show accounts in alphabetical order.


73. The final step in the recording process is to transfer the journal information to theA) trial balance.B) financial statements.C) ledger.D) file cabinets.

74. The ledger accounts should be arranged inA) chronological order.B) alphabetical order.C) financial statement order.D) order of appearance in the journal.

75. Which statement about an account is true?A) In its simplest form, an account consists of two parts.B) An account is an individual accounting record of increases and decreases in

specific asset, liability, and stockholders' equity items.C) There are separate account for specific assets and liabilities but only one account

for stockholders' equity items.D) The left side of an account is the credit or decrease side.


Answer Key

1. D2. C3. C4. C5. D6. A7. B8. D9. D

10. B11. B12. C13. D14. A15. B16. A17. C18. B19. A20. D21. A22. A23. B24. C25. C26. C27. C28. C29. C30. A31. A32. D33. A34. A35. D36. B37. A38. D39. A40. A41. D42. D43. B44. B45. B46. C47. D48. D


49. D50. B51. D52. C53. C54. A55. B56. D57. A58. C59. C60. C61. C62. C63. C64. C65. C66. C67. D68. A69. C70. A71. A72. B73. C74. C75. B

exam 1

Documents

total dollar amount

retained earnings statement

equity total liabilities

classified balance sheet

total amount

retained earnings

chronological record

total assets