practice q

Flashcard maker : Lily Taylor
What is the primary objective of most businesses?a.
a) To maximize profits
b) To pay dividends to stockholders
c) To provide a benefit to society
d) To manufacture a quality product
a) to maximize profits
Which of the following would NOT be an example of a merchandising business?
a) Ford Motor Company
b) Safeway
c) Barnes & Noble
d) Starbucks
a) Ford Motor Company
Which of the items below is NOT a business organization form?
a) Venture entrepreneurship
b) Proprietorship
c) Partnership
d) Corporation
a) Venture entrepreneurship
More that 70% of businesses are organized as what type of business?
a) Not-for-profit
b) Corporation
c) Partnership
d) Sole proprietorship
d) Sole proprietorship
Which of the following is TRUE in regards to a limited liability company?
a) It is organized as a corporation.
b) It can elect to be taxed as a partnership.
c) It provides tax and liability advantages to the owners.
d) All are correct.
d) all are correct
Under a premium-price emphasis, a business designs products that possess __________ for which customers are willing to pay a premium price.
a) unique attributes
b) high costs
c) competitive efficiencies
d) longer warranties
a) unique attributes
Which of the following is NOT a characteristic of a cdorporation?
a) Corporations are organized as a separate legal taxable entity.
b) Ownership is divided into shares of stock.
c) Corporations experience an ease in obtaining large amounts of resources by issuing stock.
d) A corporation’s resources are limited to its individual owners’ resources.
e) Corporations make up 20% of all businesses
d) Corporations make up 20% of all businesses
An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock is a
a) proprietorship.
b) corporation.
c) partnership.
d) governmental unit.
b) corporation
A low-cost emphasis strives to provide
a) no-frills, standardized products and services.
b) products and services that provide unique market needs.
c) products and services that provide prestige and image for customers.
d) products and services that compete on features other than price.
a) no-frills, standardized products and services
Which of the following businesses use a premium-price emphasis?
a) Value City Furniture
b) Abercrombie & Fitch
c) Wal-Mart Supercenters
d) Southwest Airlines
b) Abercrombie & Fitch
Motel 6 is an example of a business using which of the following?
a) Low-cost emphasis
b) Combination emphasis
c) Differentiation strategy
d) Premium-price emphasis
a) Low-cost emphasis
Which of the following are business stakeholders?
a) Stockholders
b) Suppliers
c) Customers
d) All of these
d) all of these
The following are examples of internal stakeholders EXCEPT:
a) managers.
b) creditors.
c) employees.
d) All of these are internal stakeholders.
b) creditors
Which of the following is NOT an example of a capital market stakeholder?
a) Banks
b) Owners
c) Suppliers
d) Stockholders
c) suppliers
Due to various fraudulent business practices and accounting coverups in the early 2000s, Congress enacted the Sarbanes-Oxley Act of 2002. The act was responsible for establishing a new oversight board for public accountants called the
a) Generally Accepted Accounting Practices for Public Accountants Board.
b) Public Company Accounting Oversight Board.
c) Congressional Accounting Oversight Board.
d) None are correct.
b) Public Company Accounting Oversight Board
Capital market stakeholders have an interest in the company because
a) they provide incentives for the company to market their products.
b) they are part of the Marketing Department that is responsible for promoting the products or services to increase the business profits.
c) they help market their products to customers or find vendors to supply needed inputs.
d) they provide major financing for the business.
d) they provide major financing for the business.
Who has first preference to assets in case a business fails?
a) Stockholders
b) Long-term creditors
c) Customers
d) Employees
b) Long-term creditors
Governments have an interest in the economic performance of business because of
a) tax collections.
b) community involvement from the business.
c) business incentives.
d) all of these.
a) tax collections
Managers are evaluated primarily on the business’s
a) tax collections.
b) growth.
c) economic performance.
d) all of these.
c) economic performance
Financing activities involve obtaining __________ to operate a business.
a) products
b) customers
c) business incentives
d) funds
d) funds
When a business borrows money, it incurs a(n)
a) tax.
b) liability.
c) receivable.
d) additional equity.
b) liability
When a product is sold, this cost is often called
a) cost of goods sold.
b) revenue.
c) products.
d) retained earnings.
a) cost of goods sold
A note payable requires payment of the amount borrowed plus
a) interest.
b) cash.
c) accounts payable.
d) investments.
a) interest
Shares of ownership are evidenced by issuing
a) bonds payable.
b) commercial paper.
c) shares of stock.
d) notes payable.
c) shares of stock
The resources a business owns are called
a) assets.
b) liabilities.
c) earnings.
d) stockholders’ equity.
a) assets
The purchase of factory equipment would be an example of which type of business activity?
a) Financing
b) Investing
c) Operating
d) All of these
b) Investing
Which of the following is an example of an intangible asset?
a) Patent
b) Cash
c) Land
d) Equipment
a) Patent
Rights to payments from customers are
a) liabilities.
b) prepaid expenses.
c) accounts receivable.
d) accounts payable.
c) accounts receivable
Which of the following is considered an asset until consumed?
a) Accounts payable
b) Prepaid expense
c) Accounts receivable
d) Stockholders’ equity
b) Prepaid expense
__________ is the increase in assets from selling products and services.
a) Revenue
b) Liabilities
c) Products
d) Stockholders’ Equity
a) Revenue
Cash collected from sales during the normal course of business would be an example of which type of business activity?
a) Operating
b) Investing
c) Financing
d) None of these
a) Operating
Costs incurred in operating a business are also known as
a) revenues.
b) expenses.
c) liabilities.
d) dividends.
b) expenses
The role of accounting in business is best defined as
a) an information system that provides reports to stakeholders about the economic activities and condition of a business.
b) a method of forecasting the future profitability of a company.
c) the policies, procedures, and strategies used in a business.
d) transaction analysis.
a) in information system that provides reports to stakeholders about the economic activities and condition of a business
Debts owed by a business are referred to as
a) accounts receivable.
b) equities.
c) stockholders’ equity.
d) liabilities.
d) liabilities
Reporting the financial condition of a business at a point in time and the changes in the financial condition of a business over a period of time are the two major objectives of
a) tax accounting.
b) union contracts.
c) managerial accounting.
d) financial accounting.
d) financial accounting
Which statement is normally prepared first?
a) Income statement
b) Balance sheet
c) Statement of cash flows
d) Retained earnings statement
a) income statement
A summary of revenue and expenses for a specific period of time is a(n)
a) income statement.
b) balance sheet.
c) statement of cash flows.
d) retained earnings statement.
a) income statement
Gilbert, Inc. had the following account balances at September 30, 2010. What is Gilbert’s net income for the month of September?
Accounts Payable – 5,000
Capital Stock – 10,000
Cash – 14,300
Equipment – 15,400
Fees Earned – 54,400
Miscellaneous Expense – 18,200
Rent Expense – 4,150
Retained Earnings – 6,550
Wages Expense – 13,900

a) $32,450
b) $27,450
c) $6,550
d) $18,150

d) $18,150
Browning, Inc. had revenues of $234,000, expenses of $175,000, and dividends of $30,000 during 2010. Which of the following statements is correct?
a) Net income for 2010 totaled $29,000.
b) Net income for 2010 totaled $59,000.
c) Total retained earnings increased by $59,000 during 2010.
d) Total retained earnings decreased by $30,000 during 2010.
b) net income for 2010 totaled $59,000
A summary of changes in the earnings retained in the corporation for a specific period of time is a(n)
a) income statement.
b) balance sheet.
c) statement of cash flows.
d) retained earnings statement.
d) retained earnings statement
A list of assets, liabilities, and owners’ equity as of a specific date is a(n)
a) income statement.
b) balance sheet.
c) statement of cash flows.
d) retained earnings statement.
b) balance sheet
Which of the following is an appropriate representation of the accounting equation?
a) Assets + liabilities = stockholders’ equity
b) Assets = liabilities + stockholders’ equity
c) Assets = liabilities
d) Assets = liabilities + retained earnings
b) Assets = liabilities + stockholders’ equity
A summary of the cash receipts and cash payments for a specific period of time is a(n)
a) income statement.
b) balance sheet.
c) statement of cash flows.
d) retained earnings statement.
c) statement of cash flows
The portion of a corporation’s net income retained in the business is called
a) income statement.
b) balance sheet.
c) statement of cash flows.
d) retained earnings.
d) retained earnings
The debt created by a business when it makes a purchase on account is referred to as an
a) account payable.
b) account receivable.
c) asset.
d) expense payable.
a) account payable
If there was no beginning retained earnings, net income of $20,000, and ending retained earnings of $6,000, how much were dividends?
a) $10,000
b) $4,000
c) $6,000
d) $14,000
d) $14,000
During 2010, Smith Corporation had an increase in total assets of $70,000 and an increase in total liabilities of $90,000. Assuming that capital stock increased by $5,000 and no dividends were paid, calculate Smith’s net income or net loss for 2010.
a) Net loss of $15,000
b) Net loss of $20,000
c) Net loss of $25,000
d) Net income of $15,000
c) net loss of $25,000
The “rules” of accounting are called
a) income tax regulations.
b) SEC regulations.
c) Internet rules.
d) Generally Accepted Accounting Principles.
d) Generally Accepted Accounting Principles
Which principle determines the amount initially entered into the records for purchases?
a) Cost principle
b) Going concern concept
c) Business entity concept
d) Objectivity concept
a) Cost principle
Recording revenue when a sale is made most directly relates to which concept?
a) Going concern concept
b) Periodicity concept
c) Matching concept
d) Adequate disclosure concept
c) Matching concept
Expressing financial data as if a business will continue operating for an indefinite period time refers to which concept?
a) Business entity concept
b) Going concern concept
c) Objectivity concept
d) Adequate disclosure concept
b) Going concern concept
The financial statement that presents a summary of the revenues and expenses of a business for a specific period of time, such as a month or year, is called a(n)
a) prior period statement.
b) statement of retained earnings.
c) income statement.
d) balance sheet.
c) income statement
Including all relevant data a reader needs to understand the financial condition and performance of a business refers to which concept?
a) Adequate disclosure concept
b) Going concern concept
c) Objectivity concept
d) Business entity concept
a) Adequate disclosure concept
Cash investments made by the stockholders of the business are reported on the statement of cash flows in the
a) financing activities section.
b) investing activities section.
c) operating activities section.
d) supplemental statement.
a) financing activities section
The basic financial statements do NOT include the
a) income statement.
b) tax return.
c) balance sheet.
d) statement of cash flows.
b) tax return
Which of the following is NOT an element of the financial accounting system?
a) A set of rules for determining the recording of economic events
b) A framework for preparing financial statements
c) A set of rules for the stock exchange
d) Controls to determine whether errors occur during recording
c) a set of rules for the stock exchange
If a $15,000 purchase of equipment for cash is incorrectly recorded as an increase to equipment and as an increase to cash, at the end of the period assets will
a) exceed liabilities and stockholders’ equity by $15,000.
b) equal liabilities and stockholders’ equity.
c) exceed liabilities and stockholders’ equity by $30,000.
d) exceed liabilities and stockholders’ equity by $40,000.
c) exceed liabilities and stockholders’ equity by $30,000
Which of the following is NOT considered to be a liability?
a) Note payable
b) Accounts receivable
c) Unearned revenues
d) Accounts payable
b) Accounts receivable
Which of the following statements is NOT true about liabilities?
a) Liabilities are debts owed to outsiders.
b) Account titles of liabilities often include the term “payable.”
c) Cash received before services are performed is considered to be a liability.
d) Liabilities do not include wages owed to employees of the company.
d) liabilities do not include wages owed to employees of the company
Which of the following accounts is a stockholders’ equity account?
a) Cash
b) Capital Stock
c) Prepaid Insurance
d) Accounts Payable
b) Capital Stock
Which of the following group of accounts are all assets?
a) Cash, Accounts Payable, Buildings
b) Accounts Receivable, Revenue, Cash
c) Prepaid Expenses, Buildings, Patents
d) Unearned Revenues, Prepaid Expenses, Cash
c) Prepaid expenses, Buildings, Patents
Which of the following situations increase stockholders’ equity?
a) Supplies are purchased on account.
b) Services are provided on account.
c) Cash is received from customers.
d) Utility bill will be paid next month.
b) Services are provided on account
Stockholders’ Equity will be reduced by all of the following accounts EXCEPT:
a) Revenues
b) Expenses
c) Dividends
d) All of the above reduce Stockholders’ Equity.
a) Revenues
Expenses can be defined as
a) assets consumed.
b) services used in the process of generating revenues.
c) costs that have been incurred during the normal course of business.
d) all of these.
d) all of these
The gross increases in stockholders’ equity attributable to business activities are called
a) assets.
b) liabilities.
c) revenues.
d) net income.
c) revenues
The payment of $15,000 for expenses was recorded by Spears Co. as an increase in cash of $15,000 and a decrease in retained earnings of $15,000. What is the effect of this error on the accounting equation?
a) Total assets will exceed total liabilities and stockholders’ equity by $15,000.
b) Total assets will exceed total liabilities and stockholders’ equity by $30,000.
c) Total assets will be less than total liabilities and stockholders’ equity by $30,000.
d) The error will not affect the accounting equation.
b) Total assets will exceed total liabilities and stockholders’ equity by $30,000
Which of the following will increase stockholders’ equity?
a) Expenses > revenues
b) Owner investment
c) Accounts payable
d) Dividends
b) owner investment
A __________ is an economic event that under generally accepted accounting principles affects an element of the financial statements and must be recorded.
a) framework
b) control
c) set of rules
d) transaction
d) transaction
The statement of cash flows is integrated with the balance sheet because:
a) the cash at the beginning of the period plus or minus the cash flows from operating, investing, and financing activities equals the end of period cash reported on the balance sheet.
b) the cash at the beginning of the period plus or minus the net income equals the end of period cash reported on the balance sheet.
c) the cash at the beginning of the period plus or minus assets and liabilities equals the end of period cash reported on the balance sheet.
d) the cash at the beginning of the period plus or minus the cash flows from operating activities equals the end of period cash reported on the balance sheet.
a) the cash at the beginning of the period plus or minus the cash flows from operating, investing, and financing activities equals the end of period cash reported on the balance sheet.
Hodges, Inc. had the following assets and liabilities as of September 30, 2011:

Assets
$56,327
Liabilities
$28,416

What is the stockholders’ equity of Hodges as of September 30, 2011?
a) $0
b) $27,911
c) $84,743
d) Cannot be determined with this information

b) $27,911
Hodges, Inc. had the following assets and liabilities as of September 30, 2011:

Assets
$56,327
Liabilities
$28,416

If assets increased by $3,914 and equity increased by $2,290, what is the increase or decrease in liabilities of Hodges as of October 31, 2011?
a) ($1,624)
b) $1,624
c) $6,204
d) ($6,204)

b) $1,624
Rush Corporation borrowed $25,000 from the bank. Which of the following accurately shows the effects of the transaction?
a) Increase cash $25,000 and decrease notes payable $25,000
b) Increase cash $25,000 and increase notes payable $25,000
c) Decrease cash $25,000 and decrease notes payable $25,000
d) Decrease cash $25,000 and increase notes payable $25,000
b) Increase cash $25,000 and increase notes payable $25,000
Flow, Inc. received cash from fees earned. How does this transaction affect the Statement of Cash Flows?
a) Increase cash from Operating Activities
b) Increase cash from Investing Activities
c) Increase cash from Financing Activities
d) No effect on the Statement of Cash Flows
a) increase cash from Operating Activities
Philip Corporation purchased equipment on account. What is the effect of this transaction?
a) Cash will decrease and equipment will increase.
b) Total assets will remain unchanged.
c) Cash flow from Investing Activities will decrease.
d) Total assets and total liabilities will both increase.
d) Total assets and total liabilities will both increase
Johnson, Inc. paid rent expense of $3,500 for the month of October. How are the accounts affected due to this transaction?
a) Increase in cash $3,500 and increase in retained earnings $3,500
b) Increase in cash $3,500 and decrease in retained earnings $3,500
c) Decrease in cash $3,500 and decrease in retained earnings $3,500
d) Decrease in cash $3,500 and increase in retained earnings $3,500
c) Decrease in cash $3,500 and decrease in retained earnings $3,500
Johnson, Inc. purchased land for cash. What effect does this transaction have on the following accounts:
a) Increase in Cash and decrease in Land
b.) Decrease in Cash and decrease in Land
c) Increase in Cash and increase in Land
d) Decrease in Cash and increase in Land
d) Decrease in Cash and increase in Land
Johnson, Inc. issued $15,000 in capital stock in exchange for cash. What is the effect of this transaction?
a) Total assets remain unchanged.
b) Cash flow from Financing Activities will increase.
c) Net Income will increase.
d) Total Retained Earnings will increase.
b) Cash flow from Financing Activities will increase
Johnson, Inc. receives $5,000 cash for fees earned. What is the effect of this transaction?
a) Total assets remain unchanged.
b) Cash flow from Financing Activities will increase.
c) Net income will increase.
d) Retained earnings will remain unchanged.Q
c) Net income will increase
Stockholders’ Equity will be increased by all of the following accounts EXCEPT:
a) Dividends
b) Revenues
c )Owner investments
d )All of the above increase Stockholders’ Equity.
a) Dividends
ABC Company deposited $20,000 in a bank account in return for issuing shares in the corporation. This transaction would affect which two financial statement elements?
a) Assets and stockholders’ equity
b) Assets and liabilities
c) Liabilities and stockholders’ equity
d) None of these
a) Assets and stockholders’ equity
BNC Company earns revenues and as a result collects cash. Which of the following financial statement elements are increased?
a) Cash only
b) Stockholders’ equity only
c) Liabilities
d) Cash and stockholders’ equity
d) Cash and stockholders’ equity
DAF Company paid a utility bill of $300 and paid rent of $700 in December. By how much would these events reduce stockholders’ equity?
a) $300
b) $1,000
c) $400
d) $700
b) $1,000
Declaring and paying cash dividends affects which balance sheet accounts?
a) Cash only
b) Stockholders’ equity only
c) Cash and stockholders’ equity
d) Cash and capital stock
c) Cash and Stockholders’ Equity
Which of the following transactions changes the mix of assets only?
a) Paid for supplies with cash
b) Borrowed money from Second National Bank
c) Received money for fees earned
d) Received a utility bill
a) Paid for supplies with cash
If Assets have a balance of $40,000 and Stockholders’ Equity has a balance of $30,000, then Liabilities must have a balance of
a) $70,000.
b) $30,000.
c) $40,000.
d) $10,000.
d) $10,000
If Liabilities have a balance of $10,000 and Stockholders’ Equity has a balance of $60,000, then Assets must have a balance of
a) $50,000.
b) $60,000.
c) $70,000.
d) $10,000.
c) $70,000
Total Assets – Beginning of the year = $100,000
Total Liabilities – Beginning of the year = $60,000
Total Assets – End of the year = $500,000
Total Liabilities- End of the year = $325,000

Refer to Exhibit 2-1. What is net income, assuming no stock was issued and no dividends were paid?
a) $215,000
b) $175,000
c) $135,000
d) $40,000

c) $135,000
Total Assets – Beginning of the year = $100,000
Total Liabilities – Beginning of the year = $60,000
Total Assets – End of the year = $500,000
Total Liabilities- End of the year = $325,000

Refer to Exhibit 2-1. What is net income, assuming no stock was issued and dividends of $25,000 were paid?
a) $110,000
b) $150,000
c) $160,000
d) $200,000

c) $160,000
Total Assets – Beginning of the year = $100,000
Total Liabilities – Beginning of the year = $60,000
Total Assets – End of the year = $500,000
Total Liabilities- End of the year = $325,000

Refer to Exhibit 2-1. What is net income, assuming $50,000 of stock was issued and no dividends were paid?
a) $110,000
b) $85,000
c) $70,000
d) $200,000

b) $85,000
Total Assets – Beginning of the year = $100,000
Total Liabilities – Beginning of the year = $60,000
Total Assets – End of the year = $500,000
Total Liabilities- End of the year = $325,000

Refer to Exhibit 2-1. What is net income, assuming $50,000 of stock was issued and $25,000 of dividends were paid?
a) $110,000
b) $150,000
c) $190,000
d) $15,000

a) $110,000
Gibbs Company has $16,000 in Retained Earnings, $27,000 in Assets, and $5,000 in Liabilities. How much is in Common Stock?
a) $22,000
b) $16,000
c) $11,000
d) $6,000
d) $6,000
A to Z Corporation engaged in the following transaction “Paid a $10,000 cash dividend.” On the Statement of Cash Flows, the transaction would be classified as
a.) Cash Flows from Operating Activities.
b) Cash Flows from Investing Activities.
c) Cash Flows from Financing Activities.
d) Noncash transaction.
c) Cash Flows from Financing Activities.
A to Z Corporation engaged in the following transaction “Purchased a building for $80,000 cash.” On the Statement of Cash Flows, the transaction would be classified as
a) Cash Flows from Operating Activities.
b) Cash Flows from Investing Activities.
c) Cash Flows from Financing Activities.
d) Non-cash transaction.
b) Cash Flows from Investing Activities
A to Z Corporation engaged in the following transaction “Issued a $30,000 note payable to borrow cash from the bank.” On the Statement of Cash Flows, the transaction would be classified as
a) Cash Flows from Operating Activities.
b) Cash Flows from Investing Activities.
c) Cash Flows from Financing Activities.
d) Non-cash transaction.
c) Cash Flows from Financing Activities.
An increase in Stockholders’ Equity from revenues earned will also result in an increase in
a) liabilities.
b) assets.
c) expenses.
d) cash flow from financing activities.
b) assets
For EFG Co., the transaction “Payment to creditors” would
a) increase total assets.
b) decrease total assets.
c) have no effect on total assets.
d) decrease stockholders’ equity.
b) decrease total assets
For EFG Co., the transaction “Cash sales to customers” would
a) increase total assets.
b) decrease total assets.
c) have no effect on total assets.
d) decrease stockholders’ equity.
a) increase total assets
For EFG Co., the transaction “Payment of interest expense” would
a) increase total assets.
b) decrease total assets.
c) have no effect on total assets.
d) increase stockholders’ equity.
b) decrease total assets
For EFG Co., the transaction “Purchase of store equipment with cash” would
a) increase total assets.
b) decrease total assets.
c) have no effect on total assets.
d) decrease stockholders’ equity.
c) have no effect on total assets
For EFG Co., the transaction “Payment of dividends” would
a) increase total assets.
b) decrease total assets.
c) have no effect on total assets.
d) increase stockholders’ equity.
b) decrease total assets
For EFG Co., the transaction “Purchase of store equipment with a note payable” would
a) increase total assets.
b) decrease total assets.
c) have no effect on total assets.
d) decrease total liabilities.
a) increase total assets
For EFG Co., the transaction “Payment of quarterly taxes” would
a) increase total assets.
b) decrease total assets.
c) have no effect on total assets.
d) increase stockholders’ equity.
b) decrease total assets
For EFG Co., the transaction “Receipt of interest income” would
a) increase total assets.
b) decrease total assets.
c) have no effect on total assets.
d) decrease total liabilities.
a) increase total assets
For EFG Co., the transaction “Receipt of a utility bill” would
a) increase total assets.
b) decrease total assets.
c) have no effect on total assets.
d) decrease total liabilities.
c) have no effect on total assets
For EFG Co., the transaction “Billed a customer for fees earned” would
a) increase total assets.
b) decrease total assets.
c) have no effect on total assets.
d) increase total liabilities.
a) increase total assets
The income statement for August indicates net income of $50,000. The corporation also paid $10,000 in dividends during the same period. If there was no beginning balance in stockholders’ equity, what is the ending balance in stockholders’ equity?
a) $40,000
b) $50,000
c) $10,000
d) $60,000
a) $40,000
Anthony, Inc. buys land for $50,000 cash. The net affect on assets is
a) $50,000 increase.
b) $0.
c) $50,000 decrease.
d) $25,000 increase.
b) $0
Declaring and paying cash dividends affects which accounts?
a) Cash only
b) Capital stock only
c) Cash and retained earnings
d) Cash and capital stock
c) cash and retained earnings
Buying equipment for cash affects which accounts?
a) Cash only
b) Retained earnings only
c) Equipment and retained earnings
d) Cash and equipment
d) cash and equipment
Receiving cash for fees earned affects which financial statement elements?
a) Assets only
b) Stockholders’ equity only
c) Assets and stockholders’ equity
d) Assets and liabilities
c) Assets and stockholders’ equity
Paying expenses affects which financial statement elements?
a) Assets only
b) Stockholders’ equity only
c) Assets and stockholders’ equity
d) Assets and liabilities
c) Assets and stockholders’ equity
The payment of a liability
a) decreases assets and stockholders’ equity.
b) increases assets and decreases liabilities.
c) decreases assets and increases liabilities.
d) decreases assets and decreases liabilities.
d) decreases assets and decreases liabilities.
Match the item with the appropriate financial statement.
a) income statement
b) balance sheet
c) retained earnings statement
d) statement of cash flows

CASH:

b) balance sheet
Match the item with the appropriate financial statement.
a) income statement
b) balance sheet
c) retained earnings statement
d) statement of cash flows

SALARY EXPENSE:

a) income statement
Match the item with the appropriate financial statement.
a) income statement
b) balance sheet
c) retained earnings statement
d) statement of cash flows

UNEARNED REVENUE:

b) balance sheet
Match the item with the appropriate financial statement.
a) income statement
b) balance sheet
c) retained earnings statement
d) statement of cash flows

DEPRECIATION EXPENSE:

a) income statement
Match the item with the appropriate financial statement.
a) income statement
b) balance sheet
c) retained earnings statement
d) statement of cash flows

CAPITAL STOCK:

b) balance sheet
Match the item with the appropriate financial statement.
a) income statement
b) balance sheet
c) retained earnings statement
d) statement of cash flows

CASH FLOWS FROM OPERATING ACTIVITIES:

d) statement of cash flows
Match the item with the appropriate financial statement.
a) income statement
b) balance sheet
c) retained earnings statement
d) statement of cash flows

ACCOUNTS RECEIVABLE:

b) balance sheet
Match the item with the appropriate financial statement.
a) income statement
b) balance sheet
c) retained earnings statement
d) statement of cash flows

BEGINNING BALANCE OF RETAINED EARNINGS:

c) retained earnings statement
Match the item with the appropriate financial statement.
a) income statement
b) balance sheet
c) retained earnings statement
d) statement of cash flows

NOTES PAYABLE:

b) balance sheet
Match the item with the appropriate financial statement.
a) income statement
b) balance sheet
c) retained earnings statement
d) statement of cash flows

ACCOUNTS PAYABLE:

b) balance sheet
Match the item with the appropriate financial statement.
a) income statement
b) balance sheet
c) retained earnings statement
d) statement of cash flows

CHANGES IN CURRENT ASSETS AND LIABILITIES:

d) statement of cash flows
Match the item with the appropriate financial statement.
a) income statement
b) balance sheet
c) retained earnings statement
d) statement of cash flows

TOTAL EXPENSES:

a) income statement
Other descriptive titles for fixed assets would include
a) plant assets.
b) property, plant, and equipment.
c) other long-term assets
d) both plant assets and property, plant, and equipment.
d) both plant assets and property, plant, and equipment
A capital expenditure would appear on the
a) income statement under operating expenses.
b) balance sheet under fixed assets.
c) balance sheet under current assets.
d) income statement under other expenses.
b) balance sheet under fixed assets
If a capital expenditure is treated as a revenue expenditure, then
a) expenses are overstated and owners’ equity is understated.
b) expenses are overstated and assets are overstated.
c) expenses are understated and owners’ equity is overstated.
d) net income is overstated and owners’ equity is understated.
expenses are overstated and owners’ equity is understated.
f a revenue expenditure is treated as a capital expenditure, then
a) expenses are overstated and owners’ equity is understated.
b) expenses are overstated and assets are overstated.
c) expenses are understated and owners’ equity is overstated.
d) net income is overstated and owners’ equity is understated.
expenses are understated and owners’ equity is overstated.
Which of the following expenditures would NOT be included in the cost of an asset?
a) Freight costs
b) Vandalism
c) Sales tax
d) Surveying fees
vandalism
A company acquired some land for $80,000 to construct a new office complex. Legal fees paid were $2,300, delinquent taxes assumed were $3,400, and $5,850 was paid to remove an old building from which salvaged materials sold for $1,950. What is the cost basis for the land?
a. $93,500
b. $91,550
c. $85,700
d. $89,600
$89,600
All amounts paid to get an asset in place and ready for use are referred to as
a. capital expenditures.
b. revenue expenditures.
c. residual value.
d. cost of an asset.
cost of an asset
The removal of an old building to make the land ready for its intended use is charged to
a. land.
b. land improvements.
c. buildings.
d. operating expenses.
land
Expenditures that add to the utility of fixed assets for more than one accounting period are
a. committed expenditures.
b. revenue expenditures.
c. current expenditures.
d. capital expenditures.
capital expenditures
Which of the following should be included in the acquisition cost of a piece of equipment?
a. Transportation costs
b. Installation costs
c. Testing costs prior to placing the equipment into production
d. All of these
all of these
Which of the following is an example of a capital expenditure?
a. Cleaning the carpet in the front room
b. Tune-up for a company truck
c. Replacing an engine in a company car
d. Replacing all burned-out light bulbs in the factory
replacing an engine in a company car
Land improvements include
a. fences.
b. trees and shrubs.
c. outdoor lighting.
d. All of the above.
all of the above
Which of the following is NOT a fixed asset?
a. Equipment
b. Buildings
c. Land held for investment
d. All of these are fixed assets.
land held for investment
Book value is defined as
a. current market value less residual value.
b. cost less residual value.
c. current market value less accumulated depreciation.
d. cost less accumulated depreciation.
cost less accumulated depreciation
What type of depreciation occurs when an asset can no longer provide services at the level originally intended?
a. Physical depreciation
b. Market depreciation
c. Cost depreciation
d. Functional depreciation
functional depreciation
Salvage value has a similar meaning as
a. residual value.
b. scrap value.
c. book value.
d. both residual value and scrap value.
both residual value and scrap value
Depreciable cost equals
a. cost less accumulated depreciation.
b. book value less residual value.
c. cost less residual value.
d. market value less residual value.
cost less residual value
Which of the following is NOT characteristic of the accumulated depreciation account?
a. Accumulated depreciation represents cash reserved for asset replacement.
b. Accumulated depreciation is a contra-asset account.
c. Accumulated depreciation may be disclosed in the notes to the financial statements.
d. All of these are characteristic of the accumulated depreciation account.
Accumulated depreciation represents cash reserved for asset replacement.
Which method of depreciation considers residual value in computing the normal periodic depreciation?
a. Straight-line
b. MACRS
c. Double-declining-balance
d. All of these
Straight-line
The accounting term depreciation measures
a. an asset’s market value decline.
b. the amount of cash a company sets aside for asset replacement.
c. the amount of asset cost allocated to expense over periods benefited.
d. anticipated losses if sold in the used market.
the amount of asset cost allocated to expense over periods benefited.
Accelerated depreciation is primarily used for
a. the financial statements of large companies.
b. the financial statements of small companies.
c. income tax purposes.
d. both financial reporting and income taxes by most companies.
income tax purposes
Recording depreciation
a. decreases net income and cash flows.
b. decreases net income and has no effect on cash flows.
c. decreases net income, assets, and cash flows.
d. decreases net income and has no effect on assets and cash flows.
decrease net income and has no effect on cash flows
To measure depreciation, all of the following must be known EXCEPT
a. market value.
b. residual value.
c. historical cost.
d. estimated life.
market value
A machine was purchased for $60,000. It has a useful life of 5 years and a residual value of $6,000. Under the straight-line method, what is annual depreciation expense?
a. $13,200
b. $12,000
c. $11,000
d. $10,800
$10,800
Equipment was purchased for $18,000. It has a useful life of 5 years and a residual value of $2,000. What is depreciation expense for year one under the double-declining-balance method?
a. $6,400
b. $3,200
c. $7,200
d. $3,600
$7200
Computer equipment was acquired at the beginning of the year at a cost of $56,000 with an estimated residual value of $5,000 and an estimated useful life of 5 years. Determine the second year’s depreciation using straight-line depreciation.
a. $10,200
b. $22,400
c. $11,200
d. $12,200
$10,200
Equipment was purchased for $30,000. It has a useful life of 5 years and a residual value of $4,000. What is depreciation expense for year two under the double-declining-balance method?
a. $5,200
b. $6,000
c. $6,240
d. $7,200
$7200
On September 1, a machine with a useful life of 8 years and a residual value of $3,000 was purchased for $47,000. What is depreciation expense in the year of purchase under straight-line depreciation assuming a December 31 year-end?
a. $3,917
b. $3,667
c. $1,958
d. $1,833
$1,833
A machine with a useful life of 10 years and a residual value of $4,000 was purchased for $30,000. What is annual depreciation under the straight-line method?
a.
$3,000
b.
$3,400
c.
$2,600
d.
$5,200
$2,600
If a fixed asset with an original cost of $18,000 and accumulated depreciation of $2,000 is sold for $15,000, the company must
a. recognize a loss on the income statement under other expenses.
b. recognize a loss on the income statement under operating expenses.
c. recognize a gain on the income statement under other revenues.
d. Gains and losses are not to be recognized upon the sell of fixed assets.
recognize a loss on the income statement under other expenses.
If a fixed asset is sold and the book value is less than cash received, the company must
a. recognize a loss on the income statement under other expenses.
b. recognize a loss on the income statement under operating expenses.
c. recognize a gain on the income statement under other revenues.
d. Gains and losses are not to be recognized upon the sell of fixed assets.
recognize a gain on the income statement under other revenues.
A fixed asset with a cost of $30,000 and accumulated depreciation of $25,000 is sold for $3,500. What is the amount of the gain or loss on disposal of the fixed asset?
a. $2,500 loss
b. $1,500 loss
c. $2,500 gain
d. $1,500 gain
$1,500 loss
A gain is recorded on the sale of fixed assets when
a. the asset is sold for a price less than its book value.
b. the asset’s book value is less than the cash received.
c. accumulated depreciation is less than the cash received.
d. None of the above.
the asset’s book value is less than the cash received.
A fully depreciated asset must be
a. removed from the books.
b. kept on the books until sold or discarded.
c. disclosed only in the notes to the financial statements.
d. recognized on the income statement as a loss.
kept on the books until sold or discarded
A company sold a delivery truck for $18,000 cash. The truck cost $47,500 and had accumulated depreciation of $36,000 as of the date of sale. The entry to record the sale would include
a. an increase in accumulated depreciation for $36,000.
b. a decrease in delivery truck for $11,500.
c. a loss for $6,500.
d. a gain for $6,500.
a gain for $6,500.
A company sold office furniture costing $16,500 with accumulated depreciation of $14,000 for $1,800 cash. The entry to record the sale would include
a. a loss for $700.
b. an increase in accumulated depreciation for $14,000.
c. a decrease in office furniture for $2,500.
d. a decrease in cash for $1,800.
a loss for $700.
A company purchased an oil well for $25 million with a residual value of $500,000. It is estimated that 10 million barrels can be extracted from the well. Determine depletion expense assuming 3 million barrels are extracted and sold.
a. $7,350,000
b. $7,500,000
c. $5,000,000
d. $7,650,000
$7,350,000
The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called
a. depletion.
b. deferral.
c. amortization.
d. depreciation.
depletion.
The Drilling Company purchased a mining site for $500,000 on July 1, 2010. The company expects to mine ore for the next 10 years and anticipates that a total of 100,000 tons will be recovered. The estimated residual value of the property is $80,000. During 2010 the company extracted 6,500 tons of ore. The depletion expense for 2010 is
a. $37,700.
b. $42,000.
c. $32,500.
d. $27,300.
$27,300
Goodwill is
a. amortized similar to other intangibles.
b. only written down if an impairment in value occurs.
c. charged to expense immediately.
d. amortized over 40 years or its economic life, whichever is shorter.
only written down if an impairment in value occurs.
Which of the following is NOT an intangible asset?
a. Goodwill
b. Trademark
c. Copyrights
d. Long-term receivable
long-term receivable
Which intangible assets are amortized over their useful life?
a. Trademarks
b. Goodwill
c. Patents
d. All of these
patents
Intangible assets are used in operations but
a. cannot be specifically identified.
b. cannot be sold.
c. lack physical substance.
d. cannot be long-lived.
lack physical substance.
The exclusive right to use a certain name or symbol is called a
a. franchise.
b. patent.
c. trademark.
d. copyright.
trademark
NBC Company purchased a patent from ABC for $144,000. At the time of purchase the patent had been in existence for 10 years. What is the first year’s amortization?
a. $7,200
b. $18,000
c. $12,000
d. $14,400
$14,400
Expenditures for research and development are generally recorded as
a. current operating expenses.
b. assets and amortized over their estimated useful life.
c. assets and amortized over 40 years.
d. current assets.
current operating expenses.
The cost of a patent should be amortized
a. over 20 years.
b. over its economic life.
c. over 20 years or its economic life, whichever is shorter.
d. only if an impairment occurs.
over 20 years or its economic life, whichever is shorter.
A patent was purchased for $670,000 with a legal life of 20 years. Management estimates that the patent has an 12-year economic life. The entry to record amortization would include
a. an increase in amortization expense for $33,500.
b. an increase in research and development expense for $670,000.
c. a decrease in patent for $55,833.
d. an increase in accumulated amortization for $670,000.
a decrease in patent for $55,833
Fixed assets are ordinarily presented in the balance sheet
a. at current market values.
b. at replacement costs.
c. at cost less accumulated depreciation.
d. in a separate section along with intangible assets.
at cost less accumulated depreciation

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