Chapter 1
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Page 21
61. Clip Joint Company is ready to sell its bonds. Which one of the following financial questions is most relevant to the
issue of the bonds and that investors will most likely want answered before they purchase the bonds?
a. How many product lines did Clip Joint Company have last year?
b. What will be Clip Joint Company’s cost to start operations in another city?
c. How much debt does Clip Joint Company already have?
d. Will Clip Joint Company pay dividends?
62. What is the name of the branch of accounting concerned with providing managers and administrators with information
to facilitate the planning and control of business operations?
a. Financial accounting
b. Auditing
c. Management accounting
d. Bookkeeping
63. Which one of the following is not one of the three activities included in the definition of accounting?
a. Communicating
b. Identifying
c. Measuring
d. Operating
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Page 22
64. Which one of the following is not an external user of financial statements?
a. Suppliers
b. Creditors
c. The company’s controller
d. None of these choices
65. Which one of the following is least likely to be a user of financial information of a grocery store?
a. The manager of the grocery store
b. The supplier of milk to the grocery store
c. A stockbroker looking for a possible investment
d. A customer at the grocery store
66. Which one of the following groups is considered an internal user of financial statements?
a. A bank reviewing a loan application from a corporation
b. The labor union representing employees of a company that is involved in labor negotiations
c. The financial analysts for a brokerage firm who are preparing recommendations for the firm’s brokers on
companies in a certain industry
d. Factory managers who supervise production line workers
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Page 23
67. Which one of the following business decisions will least likely require financial information?
a. The Gulf Coast Bank is reviewing the loan application from Tuo’s Restaurant.
b. Tuo’s Restaurant is attempting to sell its stock to the public.
c. The labor union representing Flaggler’s Fitness Spa employees is negotiating a pay raise as part of a new labor
agreement.
d. Tuo’s Restaurant management is deciding whether to wash its catering vans today or tomorrow.
68. Which of the following represents the proper order of the financial decision framework?
a. Analyze the information, formulate the question, gather information from financial statements, monitor your
decision, make the decision.
b. Formulate the question, analyze the information, gather information from financial statements, monitor your
decision, make the decision.
c. Formulate the question, gather information from financial statements, analyze the information, make the decision,
monitor your decision.
d. Analyze the information, monitor your decision, make the decision, formulate the question, gather information
from financial statements.
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Page 24
69. You are a potential stockholder and are concerned that a particular company you are ready to invest in might have too
much debt. Which financial statement would provide you with information needed in order to evaluate your concern?
a. Income statement
b. Balance sheet
c. Statement of retained earnings
d. Statement of cash flows
70. Which financial statement would you analyze to determine if a company distributed any of its profits to its
shareholders?
a. Balance sheet
b. Statement of retained earnings
c. Income statement
d. Statement of cash flows
71. Which financial statement would you refer to in order to determine whether a company owed funds to creditors?
a. Statement of cash flows
b. Statement of retained earnings
c. Income statement
d. Balance sheet
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Page 25
72. Which one of the following is an economic obligation for a business entity?
a. Salaries paid to employees for services rendered
b. Materials used in manufacturing products
c. Amounts owed to creditors
d. Payment of rent for the next year
73. Which of the following best describes the term “equity”?
a. The amount of total profits earned by a business since it began operations
b. The amount of interest or claim that the owners have in the business
c. The economic resources of a business entity
d. The cumulative profits earned by a business less any dividends distributed
74. Which one of the following is a correct expression of the accounting equation?
a. Assets + Liabilities = Owners’ Equity
b. Assets = Liabilities – Owners’ Equity
c. Assets + Owners’ Equity = Liabilities
d. Assets = Liabilities + Owners’ Equity
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Page 26
75. How is the balance sheet linked to the other financial statements?
a. The amount of retained earnings reported on the balance sheet is equal to net income.
b. Retained earnings is added to total assets and reported on the balance sheet.
c. Net income increases retained earnings on the statement of retained earnings, which ultimately increases retained
earnings on the balance sheet.
d. There is no link between the balance sheet and other statements, as each contains different accounts and provides
different information.
76. Which of the following is the correct date format for the financial statement heading?
a. Balance sheet for the year ended June 30, 2017
b. Income statement at December 31, 2017
c. Balance sheet at December 31, 2017
d. Statement of retained earnings at December 31, 2017
77. Which of the following best describes the term “retained earnings”?
a. The amount of total profits earned by a business since it began operations
b. The amount of interest or claim that the owners have on the assets of the business
c. The future economic resources of a business entity
d. The cumulative profits earned by the business less any dividends distributed
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Page 27
78. Which one of the following items is correct concerning the time element of financial statements?
a. The balance sheet covers a period of time.
b. The statement of retained earnings explains changes during a particular period.
c. An income statement lists amounts at a specific point in time.
d. Both the income statement and the balance sheet cover a period of time.
79. Which one of the following items appears on a balance sheet?
a. Accounts payable
b. Sales revenue
c. Utilities expense
d. Cost of goods sold
80. Which one of the following financial statements reports an entity’s financial position at a specific date?
a. Balance sheet
b. Statement of retained earnings
c. Income statement
d. Both the income statement and the balance sheet
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Page 28
81. Which one of the following correctly represents one of the basic financial statement models?
a. Assets – Liabilities = Net Income
b. Assets + Liabilities = Owners’ Equity
c. Revenues + Expenses = Net Income
d. Beginning Retained Earnings + Net Income – Dividends = Ending Retained Earnings
82. Which of the following statements is true?
a. Profits distributed to the creditors are called dividends.
b. The balance sheet shows the assets, liabilities, and profits of a company.
c. Dividends are an expense and are reported on the income statement as a deduction from net income.
d. The income statement reports the revenues and expenses of a company.
83. Which of the following terms best describes a distribution of the net income of a business to its owners?
a. Revenue
b. Monetary unit
c. Earnings
d. Dividends
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Page 29
84. Which statement summarizes the income earned and the dividends paid?
a. Statement of cash flows
b. Statement of retained earnings
c. Balance sheet
d. Income statement
85. Harbor City Corporation’s end-of-year balance sheet consisted of the following amounts:
Cash $ 15,000 Accounts receivable $50,000
Property, plant, and equipment 70,000 Long-term debt 40,000
Capital stock 100,000 Accounts payable 20,000
Retained earnings ? Inventory 35,000
What amount should Harbor City report on its balance sheet for total assets?
a. $110,000
b. $155,000
c. $170,000
d. $190,000
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Page 30
86. Sun City Corporation’s end-of-year balance sheet consisted of the following amounts:
Cash $ 25,000 Accounts receivable $70,000
Property, plant, and equipment 70,000 Long-term debt 40,000
Capital stock 100,000 Accounts payable 20,000
Retained earnings ? Inventory 35,000
What amount should Sun City report on its balance sheet for total assets?
a. $100,000
b. $95,000
c. $165,000
d. $200,000
87. Harbor City Corporation’s end-of-year balance sheet consisted of the following amounts:
Cash $ 15,000 Accounts receivable $50,000
Property, plant, and equipment 70,000 Long-term debt 40,000
Capital stock 100,000 Accounts payable 20,000
Retained earnings ? Inventory 35,000
What is Harbor City’s retained earnings balance at the end of the current year?
a. $10,000
b. $110,000
c. $160,000
d. $170,000
88. Leary Corporation’s end-of-year balance sheet consisted of the following amounts:
Cash $ 25,000 Accounts receivable $46,000
Property, plant, and equipment 69,000 Long-term debt 41,000
Capital stock 107,000 Accounts payable 22,000
Chapter 1
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Page 31
Retained earnings ? Inventory 33,000
What is Leary’s retained earnings balance at the end of the current year?
a. $10,000
b. $3,000
c. $66,000
d. $110,000
89. Leary Corporation’s end-of-year balance sheet consisted of the following amounts:
Cash $ 25,000 Accounts receivable $46,000
Property, plant, and equipment 69,000 Long-term debt 41,000
Capital stock 107,000 Accounts payable 22,000
Retained earnings ? Inventory 33,000
What is Leary’s total liabilities balance at the end of the current year?
a. $3,000
b. $110,000
c. $63,000
d. $173,000
90. Murphy Corporation’s end-of-year balance sheet consisted of the following amounts:
Cash $ 35,000 Accounts receivable $46,000
Property, plant, and equipment 69,000 Long-term debt 41,000
Capital stock 107,000 Accounts payable 22,000
Retained earnings ? Inventory 33,000
What is Murphy’s owners’ equity balance at the end of the current year?
a. $3,000
Chapter 1
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Page 32
b. $120,000
c. $63,000
d. $173,000
91. Marcos Company reported the following items on its financial statements for the year ending December 31, 2017:
Sales $560,000 Cost of goods sold $410,000
Salary expense 40,000 Interest expense 30,000
Dividends 20,000 Income tax expense 25,000
How much will be reported as net income on Marcos’ balance sheet at December 31, 2017, if this is the first year of
operations?
a. $55,000
b. $65,000
c. $85,000
d. Not enough information is provided.
92. Las Palmas Company reported the following items on its financial statements for the year ending December 31, 2017:
Sales $ 560,000 Cost of goods sold $400,000
Salary expense 40,000 Interest expense 30,000
Dividends 30,000 Income tax expense 25,000
How much will be reported as retained earnings on Las Palmas’ balance sheet at December 31, 2017, if this is the first
year of operations?
a. $45,000
b. $35,000
c. $85,000
d. Not enough information is provided.
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Page 34
94. Lewis Corporation reported the following information for the year ended December 31, 2017:
Net income $10,000
Dividends 6,000
Retained earnings at December 31, 2017 25,000
What was the economic effect of the payment of Lewis’s dividends?
a. The dividends reduced net income for 2017.
b. The dividends should be equal to net income if the company’s accounting equation is in balance.
c. The dividends reduced total retained earnings for the year.
d. The dividends must be paid whenever Lewis Corporation reports net income.
95. Volt Corp. reported the following information for the year ended December 31, 2017:
Revenues $ 50,000
Expenses 20,000
Retained earnings at December 31, 2016 100,000
Retained earnings at December 31, 2017 105,000
How much was paid out in dividends by Volt in 2017?
a. $20,000
b. $25,000
c. $30,000
d. $50,000
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Page 35
96. Mobile Power Corp. reported the following information for the year ended December 31, 2017.
Revenue $ 40,000
Expenses 23,000
Dividends 10,000
Retained earnings at December 31, 2017 175,000
What was the retained earnings balance for Mobile Power at December 31, 2016?
a. $165,000
b. $168,000
c. $182,000
d. $192,000
97. Native Dave’s Consultants had the following balance sheet amounts at the beginning of the year:
Total assets $400,000
Total owners’ equity 150,000
During the year, total assets increased by $100,000 and total liabilities increased by $40,000. The company also paid
$30,000 in dividends. No other transactions occurred except revenues and expenses. How much is net income for the
year?
a. $30,000
b. $60,000
c. $70,000
d. $90,000
98. On January 1, 2017, A-Best Company’s balance in retained earnings was $80,000. At the end of the year, December
31, 2017, the balance in retained earnings was $94,000. During 2017, the company earned net income of $40,000. How
much were dividends?
a. $16,000
Chapter 1
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Page 36
b. $24,000
c. $26,000
d. $64,000
99. On January 1, 2017, Francisco Company’s balance in retained earnings was $80,000. During 2017, the company
earned net income of $43,000 and paid $15,000 in dividends. Calculate the retained earnings balance at December 31,
2017.
a. $42,000
b. $90,000
c. $98,000
d. $108,000
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Page 37
100. The following information is provided by Ferrara Corporation:
Beginning retained earnings $50,000
Ending retained earnings 70,000
Dividends declared and paid 10,000
Revenue 50,000
What is the net income for Ferrara Corporation?
a. $10,000
b. $20,000
c. $30,000
d. Unable to tell from the information provided.
101. The following information is provided by Ferrara Corporation:
Beginning retained earnings $50,000
Ending retained earnings 70,000
Dividends declared and paid 10,000
Revenue 50,000
Calculate Ferrara Corporation’s expenses.
a. $20,000
b. $30,000
c. $40,000
d. Cannot tell from the information provided.
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Page 38
102. If a company has $152,000 of revenues, declares and pays $55,000 in dividends, and has net income of $89,000, how
much were expenses for the year?
a. $8,000
b. $63,000
c. $144,000
d. Unable to determine the amount due to incomplete information.
103. Aloha Company reports the following information at December 31, 2017:
Revenue $150,000
Cash 30,000
Accounts payable 40,000
Dividends 10,000
Expenses 85,000
What is Aloha Company’s net income?
a. $15,000
b. $45,000
c. $55,000
d. $65,000
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Page 39
104. Cerrato Company has assets of $350,000, liabilities of $130,000, and retained earnings of $180,000. How much is
total owners’ equity?
a. $40,000
b. $170,000
c. $220,000
d. $350,000
105. Gyro’s Shop reported a net loss of $15,000 and total expenses of $80,000. How much are total revenues?
a. $15,000
b. $65,000
c. $95,000
d. The answer cannot be determined from the information given.
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Page 40
106. Marcos Inc. had net income for 2017 of $40,000. It declared and paid a $3,500 cash dividend in 2017. If the
company’s retained earnings for the end of the year was $38,200, what was the company’s retained earnings balance at
the beginning of 2017?
a. $81,700
b. $74,700
c. $5,300
d. $1,700
107. Dimension Inc. had net income for 2017 of $24,000. It declared and paid a $13,000 cash dividend in 2017. If the
company’s retained earnings for the end of the year was $39,600, what was the company’s retained earnings balance at
the beginning of 2017?
a. $28,600
b. $50,600
c. $76,600
d. $2,600