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Indicate whether the statement is true or false.
1. Companies using a low-cost emphasis provide products and services that compete on features other than price.
a. True
b. False
2. A business stakeholder has an interest in the economic performance of a business.
a. True
b. False
3. Manufacturing businesses change basic inputs into products that are sold to individual customers.
a. True
b. False
4. John Deere is a leading manufacturer of agricultural machinery in the world, producing products that serve unique
market needs. Therefore, John Deere is an example of a company that uses a premium-price emphasis to attract
customers.
a. True
b. False
5. The balance sheet represents the accounting equation.
a. True
b. False
6. A limited liability company combines attributes of a partnership and a corporation.
a. True
b. False
7. Stockholders of a corporation are its internal stakeholders.
a. True
b. False
8. The branch of accounting related to the management’s financial decisions is known as financial accounting.
a. True
b. False
9. The popularity of the sole proprietorship is due to the ease and low cost of organizing.
a. True
b. False
10. A primary disadvantage of corporations is that the financial resources available to them are limited.
a. True
b. False
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11. Accounting is thought to be the “language of business” because business information is communicated to stakeholders.
a. True
b. False
12. The stockholders’ equity of a company should equal the sum of its total assets and total liabilities.
a. True
b. False
13. A corporation is a business that is legally separate and distinct from its owners.
a. True
b. False
14. A liability is a legal obligation to repay the amount borrowed according to the terms of the borrowing agreement.
a. True
b. False
15. Creditors have preference to assets behind stockholders if a business fails.
a. True
b. False
16. The basic type of stock issued to owners is called common stock.
a. True
b. False
17. All merchandising businesses are organized as corporations.
a. True
b. False
18. Assets are acquired through investing activities when resources are purchased.
a. True
b. False
19. A partnership is owned by two or more individuals.
a. True
b. False
20. The ownership of a proprietorship is divided into shares of stock owned by its stockholders.
a. True
b. False
21. Merchandising businesses produce products rather than provide services to customers.
a. True
b. False
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22. The objective of most businesses is to maximize profits.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
23. Which of the following is considered a business stakeholder?
a. A bank
b. An employee
c. A federal government
d. All of these
24. A corporation is an entity _____.
a. that is organized according to state or federal statutes and in which ownership is divided into shares of stock
b. that is known for its ease of formation
c. that terminates its existence with the death of the owner
d. that pays tax on the owner’s tax returns
25. 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
26. Under a _____, a business design’s products that possess unique attributes or characteristics for which customers are
willing to pay more.
a. premium-price emphasis
b. outreach emphasis
c. low-cost emphasis
d. customer emphasis
27. Reporting the financial condition of a business at a point in time and reporting the changes in the financial condition
of a business over a period of time are the two major objectives of _____.
a. fund accounting
b. forensic accounting
c. not-for-profit accounting
d. financial accounting
28. The “rules” of accounting are referred to as _____.
a. income tax regulations
b. SEC regulations
c. Internet rules
d. Generally Accepted Accounting Principles
29. Shares of ownership are evidenced by issuing _____.
a. shares payable
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b. commercial paper
c. shares of stock
d. notes payable
30. The debt created by a business when it borrows against credit from a vendor or supplier is called a(n) _____.
a. account payable
b. contingent liability
c. intangible asset
d. account receivable
31. Which of the following is an intangible asset?
a. Patent
b. Cash
c. Land
d. Equipment
32. The resources a business owns are called _____.
a. assets
b. liabilities
c. earnings
d. stockholders’ equity
33. _____ are an example of internal stakeholders.
a. Managers
b. Creditors
c. Stockholders
d. Suppliers
34. Heedy Company had the following account balances in 20Y7 and 20Y8, respectively. Assuming dividends of $20,000
were paid in 20Y8, how much was net income?
20Y8 20Y7
Capital Stock $ 42,000 $ 40,000
Retained Earnings x 210,000
Total Stockholders’ Equity $ 314,000 $ 250,000
a. $62,000
b. $82,000
c. $272,000
d. $252,000
35. Which of the following statements is true about a limited liability company?
a. It is organized under state or federal statutes as a separate legal entity.
b. Many professional practices such as lawyers, doctors, and accountants are organized as limited liability
companies.
c. Its financial resources are limited to the individual owner’s resources.
d. The frequency of this form is due to the ease and low cost of organizing.
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36. A return on assets of 5.15% means that a company is earning _____.
a. a $5.15 return on every $100 of total assets.
b. a $5.15 return on every $100 of assets minus liabilities.
c. a $5.15 return on every $100 of current assets.
d. a $5.15 return on every $100 invested in long-term assets.
37. The performance evaluation of the managers of a company is dependent on the company’s _____.
a. common stock
b. volatility
c. economic performance
d. nonrecurring activities
38. 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
39. 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
40. During the most recent year, Banigo Corporation experienced an increase in total assets of $72,600 and an increase in
total liabilities of $40,900. Assuming that capital stock increased by $5,000 and no dividends were paid, calculate
Banigo’s net income or net loss for the end of the year.
a. Net income of $26,700
b. Net loss of $31,700
c. Net income of $67,600
d. Net loss of $45,900
41. Given the following list of accounts, calculate Total Assets.
Accounts Receivable $ 10,000
Capital Stock 20,000
Cash 25,300
Equipment 16,800
Fees Earned 44,400
Miscellaneous Expense 17,800
Rent Expense 3,250
Retained Earnings 7,850
Salaries Expense 15,400
Wages Expense 15,000
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a. $52,100
b. $55,300
c. $54,600
d. $40,050
42. Which of the following businesses use a premium-price emphasis?
a. Value City Furniture selling furniture at affordable prices
b. Tommy Hilfiger selling products that have a unique image
c. Wal-Mart reselling standardized products
d. Southwest Airlines providing standardized services
43. The role of accounting in business is best defined as _____.
a. an information system that provides reports to stakeholders about the economic activities and financial 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. the process of transaction analysis
44. If there are no beginning retained earnings, net income of $30,300, and ending retained earnings of $8,000, how much
are dividends?
a. $38,300
b. $22,300
c. $6,000
d. $8,000
45. Which of the following types of organizational forms is popular for its ease of formation and low cost of organizing?
a. Not-for-profit
b. Corporation
c. Partnership
d. Proprietorship
46. Which of the following accounting concepts requires that the financial statements, including related notes, contain all
relevant data a stakeholder would need to understand the financial condition and performance of the company?
a. The adequate disclosure concept
b. The cost concept
c. The objectivity concept
d. The matching concept
47. The return on assets is calculated by _____.
a. dividing interest expense by average total asset and average current assets
b. dividing net income before taxes and interest expense by average total asset
c. dividing average total asset and interest expense by net income taxes
d. dividing net income before taxes and interest expense by average current assets
48. Which of the following is the correct order for preparing financial statements?
a. Income statement, Statement of cash flows, Retained earnings statement, Balance sheet
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b. Retained earnings statement, Income statement, Statement of cash flows, Balance sheet
c. Statement of cash flows, Retained earnings statement, Balance sheet, Income statement
d. Income statement, Retained earnings statement, Balance sheet, Statement of cash flows
49. The portion of a corporation’s net income reserved for future decisions in the business is called _____.
a. interest earnings
b. dividends
c. tax expense
d. retained earnings
50. When a business borrows money, which of the following is incurred?
a. An accumulated depletion
b. A liability
c. A loss
d. An accrued expenditure
51. The economic performance of a business is of importance to the government because _____.
a. of potential tax collections
b. the government sells its products to the business
c. of the amount owed by the government to the business
d. all of these
52. Which of the following is true about the cost principle?
a. It limits the economic data recorded in an accounting system to data related to the activities of that company.
b. It initially records assets in the accounting records at their purchase price.
c. It assumes that a company will continue in business indefinitely.
d. It reports the revenues earned by a company for a period with the expenses incurred in generating the revenues.
53. Rights to payments from customers are _____.
a. liabilities
b. prepaid expenses
c. accounts receivable
d. accounts payable
54. From the following information for BlueInks Corporation, compute the rate on return of assets.
Net income after tax $30,548
Taxes $6,785
Interest expense $3,545
Total assets at beginning of year $150,500
Total assets at end of year $175,684
a. 20.90%
b. 25.06%
c. 22.89%
d. 18.73%
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55. Which of the items below is not a business organization form?
a. Multi-venture
b. Proprietorship
c. Partnership
d. Corporation
56. Which of the following is true of rate of return on assets?
a. It is a measure of a company’s profitability.
b. It is used to evaluate a company’s ability to pay off its short-term debts.
c. It is used to determine the financial leverage of a company.
d. It is a measure of the optimum capital structure.
57. Profitability ratios such as _____ can be used to analyze and assess a company’s financial performance.
a. fixed assets turnover
b. current ratios
c. dividend payout ratios
d. return on assets
58. A note payable requires payment of the amount borrowed plus _____.
a. interest
b. tax
c. overhead
d. dividend
59. 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
60. _____ is the increase in assets from selling products or providing services.
a. Revenue
b. Interest income
c. Equity
d. Cost of goods sold
61. Use the following information to determine Total Stockholders’ Equity.
Total Assets $ 85,000
Total Liabilities 21,000
Total Stockholders’ Equity x
Total Retained Earnings 9,000
a. $58,000
b. $64,000
c. $55,000
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d. $40,000
62. Which of the following is not a characteristic of a corporation?
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 can elect to be taxed as a partnership.
63. 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
64. Financing activities_____ .
a. involve obtaining funds to operate a business
b. involve obtaining assets such as buildings and equipment
c. help to earn revenues and profits
d. help to make wise investments in other companies
65. Capital market stakeholders have an interest in a company because _____.
a. they collect taxes from the company
b. they depend upon the continued success of the company for keeping their jobs
c. they purchase the company’s products or services or sell their products or services to the company
d. they provide major financing for the business
66. Revenues received from providing services are referred to as _____.
a. fees earned
b. net income
c. gross income
d. retained earnings
67. Which of the following are not an example of a capital market stakeholder?
a. Banks
b. Owners
c. Suppliers
d. Stockholders
68. Motel 6, a company that helps customers find budget motels across the nation, is an example of a business using
which of the following?
a. Low-cost emphasis
b. Outreach emphasis
c. Customer emphasis
d. Premium-price emphasis
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69. A financial statement that summarizes the cash receipts and cash payments of a company for a specific period of time
is _____.
a. the cash analysis statement.
b. the bank reconciliation statement.
c. the statement of cash flows.
d. the statement of retained and nonretained cash earnings.
70. What is the primary objective of most businesses?
a. To maximize profits
b. To pay dividends to stockholders
c. To provide a benefit to society
d. To manufacture a quality product
71. 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 + Capital stock
d. Assets = Liabilities + Retained earnings
72. According to which of the following concepts should the expenses incurred when generating revenue be reported in
the same period as the related revenue?
a. The cost concept
b. The periodicity concept
c. The matching concept
d. The adequate disclosure concept
73. 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
74. The portion of a corporation’s net income that is paid out to the stockholders, instead of being retained in the business,
is referred to as _____.
a. gross income
b. earnings before interest and taxes
c. interest expense
d. dividends
75. Costs incurred to earn revenue are referred to as _____.
a. common stock
b. expenses
c. liabilities
d. retained earnings
76. In the case of a failing company, the right to the first claim of the company’s assets belongs to _____.
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a. the state governments
b. the creditors of the company
c. the owners of the company
d. the managers of the company
77. 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 a year, is called a(n) _____.
a. prior period statement
b. statement of retained earnings
c. income statement
d. balance sheet
78. Which of the following is considered an asset until consumed?
a. Accounts payable
b. Prepaid expense
c. Accounts receivable
d. Stockholders’ equity
79. 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
80. Pelican, Inc., had revenues of $395,000, expenses of $155,000, and dividends of $54,000 during the current year.
Based on the given information, which of the following statements is true?
a. Net income for the current year totaled $240,000.
b. Net income for the current year totaled $186,000.
c. Total retained earnings increased by $240,000 during the current year.
d. Total retained earnings decreased by $186,000 during the current year.
81. Due to various fraudulent business practices and accounting scandals 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. Financial Accounting Standards Board
82. Which of the following businesses buys products from other businesses wholesale to sell them to customers at a retail
price?
a. A merchandising business
b. A manufacturing business
c. A service business
d. An investment business
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83. Debts owed by a business are referred to as _____.
a. accounts receivable
b. equities
c. stockholders’ equity
d. liabilities
84. Hofnim, Inc., had the following account balances on September 30, 20Y8. What is Hofnim’s net income for the month
of September?
Accounts Payable $ 9,900
Capital Stock 15,000
Cash 19,600
Equipment 19,100
Fees Earned 64,000
Miscellaneous Expense 19,700
Rent Expense 5,100
Retained Earnings 5,000
Wages Expense 16,450
a. $8,800
b. $22,750
c. $13,260
d. $17,750
85. Three different companies—A, B, and C—have the same balance sheet at the beginning and the end of a year. These
are summarized as follows:
Total Assets Total Liabilities
Beginning of the year $500,000 $250,000
End of the year $1,200,000 $350,000
Given the data above and the additional information for each of the following companies, determine the net income (loss)
for each company.
Company A No additional investment was made by stockholders, and no dividends were paid.
Company B Stockholders invested an additional $200,000, and no dividends were paid.
Company C Stockholders invested $450,000, and dividends of $50,000 were paid.
86. Name the three different types of businesses that operate for profit and their respective characteristics.
87. Define accounting and its role in business.