978-1337276337 Test Bank Chapter 2 Part 3

Chapter 2

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106. Read the information about Hopper, Inc. Which ratio are you able to calculate given only the information provided

by Hopper?

a. Profit margin

b. Current ratio

c. Working capital

d. Gross profit percentage

107. Which one of the following equations represents retained earnings activity?

a. Beginning Balance + Net Income + Dividends = Profits for the Year

b. Beginning Balance + Cash Inflows – Cash Outflows = Ending Balance

c. Beginning Balance + Dividends – Net Income = Ending Balance

d. Beginning Balance + Net Income – Dividends = Ending Balance

Moore Industries

Moore Industries began operations on January 2, 2017, with an investment of $50,000 by each of its two stockholders. Net

income for its first year of business was $240,000. Moore Industries paid a total of $100,000 in dividends to its

stockholders during the year.

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108. Read the information about Moore Industries. What is the company’s retained earnings balance at December 31,

2017?

a. $140,000

b. $190,000

c. $240,000

d. $340,000

109. Read the information about Moore Industries. If the company’s revenues were $500,000 for the year ended

December 31, 2017, how much were total expenses?

a. $160,000

b. $260,000

c. $640,000

d. $740,000

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110. Read the information about Moore Industries. The company’s dividends for the year

a. reduce the amount of capital stock reported by the company.

b. are part of Moore Industries’ operating costs.

c. are reported on the statement of retained earnings.

d. are an expense of Moore Industries.

111. If there are no changes in a company’s capital stock during a period, the company may choose to prepare

a. an income statement instead of a statement of stockholders’ equity.

b. an income statement instead of a statement of retained earnings.

c. a statement of stockholders’ equity instead of a statement of retained earnings.

d. a statement of cash flows instead of a statement of retained earnings.

112. In preparing the financial statements for December 31, 2017, an accountant improperly classified the payment of

prepaid rent as rent expense. Which of the following amounts would not be affected by this improper classification?

a. Retained earnings, January 1, 2017

b. Retained earnings, December 31, 2017

c. Net income

d. Total assets

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113. Carnival Bakery borrowed $500,000 from Front Street Bank. Carnival then hired a contractor to build a new Jonesie

distribution outlet. In which section of Carnival’s statement of cash flows would you find information that indicated that

Carnival acquired the new Jonesie distribution outlet?

a. Operating Activities

b. Investing Activities

c. Financing Activities

d. Profit Activities

114. A bank loaned $62 million to Apex Corporation to finance the construction of a new distribution warehouse. In

which section of Apex’s statement of cash flows would you be able to determine whether the company repaid any portion

of the debt during the year?

a. Operating Activities

b. Investing Activities

c. Financing Activities

d. Profit Activities

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115. Which of the following sections on a statement of cash flows is used to report the cash flow effects of transactions

involving a company’s stock?

a. Operating Activities

b. Investing Activities

c. Financing Activities

d. Profit Activities

116. Which one of the following sections on a statement of cash flows is used to report the cash flow effects of buying

and selling property, plant, and equipment?

a. Operating Activities

b. Investing Activities

c. Financing Activities

d. Profit Activities

117. Which one of the following is considered a financing activity?

a. The payment of interest on a note payable to the bank

b. Selling products to customers

c. Paying wages to employees

d. The payment of a cash dividend

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118. Which one of the following statements is true?

a. The two primary sources of financing available to corporations are borrowed funds and funds invested by owners.

b. Financing activities involve the acquisition of property, plant and equipment.

c. Borrowed funds are a more permanent source of financing than funds invested by owners.

d. Investing activities involve the selling of products or services and the incurring of expenses related to selling these

products and services.

Marvel Shoes

Marvel Shoes reported the following items on its statement of cash flows for the current year:

Net cash inflows from operating activities $ 70,000

Net cash outflows from investing activities (20,000)

Net cash outflows from financing activities (40,000)

Cash balance at the beginning of the year 30,000

119. Read the information about Marvel Shoes. What was the amount of net increase or decrease in the cash balance for

Marvel Shoes for the current year?

a. $10,000 increase

b. $30,000 increase

c. $40,000 increase

d. $70,000 increase

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120. Read the information about Marvel Shoes. What was the cash balance for Marvel Shoes at the end of the current

year?

a. $10,000

b. $30,000

c. $40,000

d. $70,000

121. Which financial statement reports the sources and uses of an entity’s cash resources?

a. Income statement

b. Statement of retained earnings

c. Balance sheet

d. Statement of cash flows

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122. During its fifth year of operations, Bright Creations Company reports a beginning cash balance of $132,000, cash

inflows from investing activities of $210,000, cash outflows for financing activities of $79,000, and cash outflows for

operating activities of $13,000. What was Bright Creations’ cash balance at the end of the fifth year?

a. $250,000

b. $434,000

c. $276,000

d. $132,000

123. Which of the following best describes a company’s financing activities?

a. Financing activities focus on the sale of products and services.

b. Financing activities include selling products.

c. Financing activities enable a company to acquire assets needed to run a business.

d. Financing activities are represented by the revenues and expenses on the income statement.

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124. Which of the following best describes a company’s operating activities?

a. Operating activities focus on the sale of products and services.

b. Operating activities are necessary to provide the money to start a business.

c. Operating activities are needed to provide the valuable assets required to run a business.

d. Operating activities represent the right to receive a benefit in the future.

125. Which one of the following is an investing activity of a business?

a. Paying for purchases of inventory

b. Issuing stock for cash

c. Borrowing money from a bank

d. Purchasing a manufacturing plant for cash

126. Which one of the following is a financing activity of a business?

a. Paying for purchases of inventory

b. Issuing stock for cash

c. Paying salaries

d. Purchasing a manufacturing plant

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127. Which one of the following is an operating activity of a business?

a. Paying for purchases of inventory

b. Issuing stock for cash

c. Borrowing money from a bank

d. Purchasing a manufacturing plant

128. Which of the following represents the correct sequence of the three business activities on the statements of cash

flows?

a. Financing, Operating,Investing

b. Investing, Operating, Financing

c. Operating, Investing, Financing

d. Financing, Investing, Operating

129. Business entities generally carry on

a. operating, investing, and financing activities.

b. operating activities, but only corporations engage in financing and investing activities.

c. investing and operating activities, but only corporations engage in financing activities.

d. either investing or financing activities, but not both.

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130. Although businesses engage in a wide variety of activities, all of these activities can be categorized into three types.

Which of the following choices best reflects these three types of business activities?

a. Operating, financing, reporting

b. Investing, reporting, financing

c. Operating, financing, investing

d. Investing, reporting, operating

131. As used in accounting, the “Notes to the Financial Statement” should be

a. listed with the liabilities on the balance sheet.

b. omitted at the option of the company.

c. included as an integral part of the financial statements.

d. reported as expenses on the income statement.

132. Which of the following items will be found in a corporate annual report?

a. Company budgets

b. Notes to the financial statements

c. Selected financial data from competitor companies

d. Management’s statement that the auditors are responsible for the financial statements

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133. Which one of the following sections is least likely to be found in a corporate annual report?

a. Notes to the Financial Statements

b. Forecasts of Cash Flows and Earnings

c. Report of Independent Accountants

d. Management’s Discussion and Analysis

134. Supplementary disclosures required by GAAP that help explain detail behind the accounting treatment of certain

items in the financial statements is most likely found in which of the following sections of a corporate annual report?

a. Report of Independent Accountants

b. Notes to the Financial Statements

c. Management’s Discussion and Analysis

d. Balance sheet

135. An investor found the following in an annual report: “The financial statements, in our opinion, present fairly the

financial position, operating results, and cash flows, in conformity with accounting principles generally accepted in the

United States.” In which section of the annual report did the investor find this?

a. Balance sheet

b. Notes to the Financial Statements

c. Management’s Discussion and Analysis

d. Report of Independent Accountants

136. Which of the following represents one of the purposes of the notes to financial statements?

a. To provide a place for management to justify questionable items in the statements

b. To provide comparative ratios for the company’s financial data

c. To provide the CPA’s opinion of the fairness of the financial statements

d. To satisfy the need for full disclosure of all the facts relevant to a company’s results and financial position

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137. Which of the following is generally supplementary information required by GAAP concerning the accounting

treatments used by a company?

a. A year-end worksheet

b. Management’s Discussion and Analysis

c. Report of Independent Accountants

d. Notes to the Consolidated Financial Statements

138. ____________________ and ____________________ have claims to an entity’s economic resources.

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139. ____________________ is the magnitude of an omission or misstatement in accounting information that will affect

the judgment of someone relying on the information.

140. . ____________________ is the impact of information to change decision-making.

141. ____________________ is the practice of using the least optimistic estimate when two estimates of amounts are

about equally likely.

142. ____________________ is the quality of accounting information that makes it comprehensible to those willing to

spend the necessary time.

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143. ____________________ is the quality of accounting information that makes it dependable in representing the events

that it purports to represent.

144. ____________________ is the quality of accounting information that allows a user to analyze two or more

companies and look for similarities and differences.

145. . ____________________ is the quality of accounting reporting that allows a user to compare two or more

accounting periods for a single business.

146. ____________________ have claims to an entity’s economic resources.

147. _________________________ are cash and other assets that are reasonably expected to be converted to cash during

the normal operating cycle of the business.

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151. The ability of a company to pay its debt when due refers to ____________________.

152. In a ____________________-step income statement, all expenses and losses are added together and then deducted

from the sum of all revenues and gains.

153. The statement of ____________________ explains changes in the components of owners’ equity during the period.

154. On the statement of cash flows, the ______________________________ section involves the acquisition and sale of

long-term assets.

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155. On the statement of cash flows, the ______________________________ section involves the purchase and sale of

products and services.

156. On the statement of cash flows, the ______________________________ section involves the issuance and

repayment of long-term liabilities and stock transactions.

Matching

Match the following characteristics with the statements about each qualitative characteristic’s importance.

a. Consistency

b. Materiality

c. Conservatism

d. Comparability

e. Reliability

f. Relevance

g. Understandability

DIFFICULTY: Moderate

REFERENCES: pp. 53–56

LEARNING OBJECTIVES: FACC.PONO.18.02-02 – LO: 02–02

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-23 – Financial Statements

AICPA: FN-Reporting

TOPICS: Example 2-2

KEYWORDS: Bloom’s: Remembering

157. Those willing to spend the time should be provided with comprehensible accounting information.

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158. The accounting information must be information that could affect a decision.

159. Accounting information should use the least optimistic estimate.

160. This quality allows users to analyze two or more companies and look for similarities and differences.

161. Users must be able to compare accounting information of a firm with its prior year information.

162. Accounting information must be verifiable and faithfully represent actual transactions.

163. This quality refers to an amount large enough to affect a decision.

For each item listed, select the section of the balance sheet in which the item would be reported. Answers may be used

more than once.

a. Current Assets

b. Property, Plant, and Equipment

c. Current Liabilities

d. Long-Term Liabilities

e. Stockholders’ Equity

DIFFICULTY: Moderate

REFERENCES: pp. 56–61

LEARNING OBJECTIVES: FACC.PONO.18.02-03 – LO: 02–03

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-09 – Financial Statements

AICPA: FN-Reporting

KEYWORDS: Bloom’s: Remembering

164. Cash

165. Accounts payable

166. Retained earnings

167. Land

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168. Capital stock

169. Accounts receivable

170. Equipment

171. Notes payable—due within one year

172. Interest payable

173. Bonds payable

174. Computer used within the business

175. Computer available for resale

Match the selected items from a classified balance sheet and multiple-step income statement to the section in which they

would appear on the classified balance sheet or the income statement.

a. Current Assets (balance sheet)

b. Property, Plant, and Equipment (balance sheet)

c. Current Liabilities (balance sheet)

d. Long-Term Liabilities (balance sheet)

e. Stockholders’ Equity (balance sheet)

f. Operating Revenue (income statement)

g. Operating Expenses (income statement)

h. Other Revenue and Expenses (income statement)

i. Income Taxes (income statement)

DIFFICULTY: Moderate

REFERENCES: pp. 56–61 and pp. 64–66

LEARNING OBJECTIVES: FACC.PONO.18.02-03 – LO: 02–03

FACC.PONO.18.02-05 – LO: 02–05

NATIONAL STANDARDS: United States – BUSPROG: Communications

ACCREDITING STANDARDS: ACBSP: APC-09 – Financial Statements

AICPA: FN-Reporting

KEYWORDS: Bloom’s: Remembering

176. Accounts receivable