80) During the current year, Rock Company’s cash balance increased from $79,000 to $91,300.
Rock’s net cash flow from operating activities was $37,300 and its net cash flow from financing
activities was $11,100. How much was Rock’s net cash flow from investing activities?
A) A net cash flow of $42,900.
B) A net cash flow of ($36,100).
C) A net cash flow of $60,700.
D) A net cash flow of ($60,700).
81) Which of the following statements is false?
A) A positive net income results in an increase in retained earnings.
B) The ending retained earnings balance from the retained earnings portion of the statement of
stockholders’ equity is reported on the balance sheet.
C) The change in the cash balance on the statement of cash flows added to the beginning cash
balance equals the ending cash balance.
D) The dividends reported on the statement of stockholders’ equity are also reported as dividend
expense on the income statement.
82) Which of the following is not a consequence to a company resulting from the issuance of
their financial statements?
A) The effect on the selling price of their stock.
B) The providing of information to their competitors.
C) The effect of bonus payments to its employees.
D) The providing of information to their auditors.
83) Which of the following statements pertaining to the audit function is incorrect?
A) The primary responsibility for the information in the financial statements lies with the
auditors.
B) The audit report describes the auditor’s opinion of the fairness of the financial statements.
C) An audit ensures that the financial statements conform to generally accepted accounting
principles.
D) The auditor is a person who is independent of the reporting company.
84) The International Accounting Standards Board has worked to develop global accounting
standards known as:
A) Generally accepted accounting principles.
B) Globally accepted financial standards.
C) International financial reporting standards.
D) Generally accepted international financial standards.
85) An examination of the financial statements of a business to ensure that they conform to
generally accepted accounting principles is called:
A) a certification.
B) an audit.
C) a verification.
D) a validation.
86) Which of the following best describes the purpose of an audit?
A) To prove the accuracy of an entity’s financial statements.
B) To lend credibility to an entity’s financial statements.
C) To audit every transaction that an entity entered into.
D) To establish that a corporation’s stock is a sound investment.
87) Why does a company hire independent auditors?
A) To guarantee the accuracy of both annual and quarterly financial statements.
B) To verify the accounting accuracy of every transaction entered into.
C) To report on the fairness of financial statement presentation.
D) The auditors are responsible for the content of the financial statements.
88) Why is the CPA’s role in performing audits important to our economic system?
A) The auditors provide direct financial advice to potential investors.
B) The auditors have the primary responsibility for the information contained in financial
statements.
C) The auditors issue reports on the accuracy of each financial transaction.
D) The audit of financial statements helps investors and others to know that they can rely on the
information presented in the financial statements.
89) Which of the following is not one of the three steps taken by a corporation to assure the
accuracy of its records?
A) Implementing a system of controls over the company’s records and assets.
B) Hiring an independent auditor to report on the fairness of the financial statements.
C) Hiring a financial analyst to ensure the actual results of operations are similar to planned
results.
D) Forming a committee made up of board of directors’ members to oversee the integrity of the
corporation’s system of controls and the hiring of the independent auditors.
90) Which of the following groups has primary responsibility for the information contained in
the financial statements?
A) The company’s management.
B) The company’s auditors.
C) The company’s investors.
D) SEC.
91) Since 2002, there has been substantial movement toward the adoption of International
Financial Reporting Standards (IFRS) issued by the:
A) Financial Accounting Standards Board.
B) Securities and Exchange Commission.
C) International Accounting Standards Board.
D) American Institute of Certified Public Accountants.
92) Which of the following is not a formal requirement to become a licensed certified public
accountant (CPA)?
A) A college education.
B) Professional experience.
C) Membership in the American Institute of Certified Public Accountants (AICPA).
D) A professional examination.
93) Which of the following is a disadvantage of a corporation when compared to a partnership?
A) The stockholders have limited liability.
B) The corporation is treated as a separate legal entity from the stockholders.
C) The corporation and its stockholders are subject to double taxation.
D) The corporation must account for the transactions of the business as separate and apart from
those of the owners.
94) Which of the following statements is true about a sole proprietorship?
A) The owner and the business are separate legal entities but not separate accounting entities.
B) The owner and the business are separate accounting entities but not separate legal entities.
C) The owner and the business are separate legal entities and separate accounting entities.
D) Most large businesses in this country are organized as sole proprietorships.
95) For a business organized as a general partnership, which statement is true?
A) The owners and the business are separate legal entities.
B) Each partner is potentially responsible for the debts of the business.
C) Formation of a partnership requires getting a charter from the state of incorporation.
D) A partnership is not considered to be a separate accounting entity.
96) Which of the following would not be reported on a statement of stockholders’ equity?
A) Dividend payments.
B) Net income.
C) Beginning retained earnings.
D) Ending retained earnings.
97) Which of the following statements is true?
A) Expenses reported on the income statement are equal to the cash paid for operating activities
on the statement of cash flows.
B) The statement of cash flows has a relationship with the balance sheet.
C) Dividends paid are reported on the statement of cash flows as an operating cash flow and on
the income statement as a financing cash flow.
D) Net income is reported on the income statement but not on the statement of stockholders’
equity.
98) The declaration of a $5,000 dividend by JLH Company would be reported on which of JLH’s
financial statements?
A) The income statement only.
B) The statement of stockholders’ equity.
C) The balance sheet only.
D) The statement of cash flows.
99) Which of the following transactions affects both retained earnings and net income?
A) The payment of a cash dividend.
B) The recording of revenue for services provided.
C) The issuance of stock in exchange for cash.
D) The borrowing of money from a bank.
100) Which of the following transactions affects both the income statement and the statement of
cash flows?
A) Selling stock in exchange for cash.
B) Declaring and paying a cash dividend.
C) Selling a product to a customer which creates an account receivable.
D) Paying employee wages as they are earned.
101) With regard to relationships among financial statements, which of the following is true?
A) The results of the statement of stockholders’ equity affect the income statement.
B) The income statement affects the results of the statement of stockholders’ equity.
C) The statement of cash flows affects the income statement.
D) The results of the statement of cash flows affect the statement of stockholders’ equity.
102) Which of the following would not be found within the investing activities section of the
statement of cash flows?
A) Cash paid to purchase a building for manufacturing facilities.
B) Cash received from the sale of common stock to stockholders.
C) Cash received from the sale of equipment used in manufacturing a product.
D) Cash paid to purchase land.
103) Which of the following is primarily responsible for the information provided in the
financial statements?
A) Chief Executive Officer.
B) External Auditors.
C) Board of Directors.
D) Internal Accounting Staff.
104) Which of the following does not represent a professional accounting certification?
A) Certified Management Accountant.
B) Certified Public Accountant.
C) Certified Internal Auditor.
D) Certified Tax Accountant.
105) Determine the missing amounts for each independent case below. Assume the amounts
shown are at the end of the company’s first year of operation.
Company
Name
Total
Revenue
Total
Assets
Total
Expenses
Total
Liabilities
Net
Income
(Loss)
Stockholders’
Equity
Randolph
$600,000`
$450,000
$350,000
$130,000
Newman
$105,000
$80,000
$10,000
$75,000
Wiseman
$190,000
$70,000
($30,000)
$100,000
Martin
$180,000
$215,000
$115,000
$75,000
VanTassel
$55,000
$75,000
$19,000
$79,000
Assets
(Loss)
Randolph
Newman
$155,000
Wiseman
$90,000
Martin
VanTassel
$154,000
106) Gail’s Greenhouse, Inc., a small retail store that sells houseplants, started business on
January 1, 2019. At the end of January 2019, the following information was available:
Sales of plants for cash
$75,000
Sales of plants for credit (not yet collected)
15,000
Cost of plants which were sold and paid for during January
45,000
Expenses during January incurred, and paid for, during January unless otherwise noted:
Salaries
$5,000
Telephone
250
Office supplies (all used)
150
Electricity
300
Rent on the store for January, 2019 (will not be paid
until February, 2019)
1,000
A. Using the above information, prepare the income statement for Gail’s Greenhouse for the
month ended January 31, 2019.
B. What is the amount of cash flows provided by operating activities to be presented on the
statement of cash flows?
Revenue ($75,000 + $15,000)
Cost of goods sold
Salaries
Telephone
Office supplies
Electricity
Rent
Total expenses
Net income
107) Indicate on which financial statement you would expect to find each of the following. If an
item can be found on more than one statement, list each statement.
Example: Cash
Balance Sheet and Statement of Cash Flows
Notes payable
________
Wages expense
________
Cost of goods sold
________
Sales revenue
________
Inventory
________
Income tax expense
________
Dividends declared
________
Retained earnings
________
Accounts payable
________
Equipment
________
Cash
Balance Sheet and Statement of Cash Flows
Notes payable
Balance Sheet
Wages expense
Income Statement
Cost of goods sold
Income Statement
Sales revenue
Income Statement
Inventory
Balance Sheet
Income tax expense
Income Statement
Dividends declared
Statement of Stockholders’ Equity
Retained earnings
Equity
Accounts payable
Balance Sheet
Equipment
Balance Sheet
108) For each of the following items that appear on the balance sheet, identify each as an asset
(A), liability (L), or element of stockholders’ equity (SE). For any item that would not appear on
the balance sheet, write the letter, N.
Retained earnings
_______
Accounts payable
_______
Selling expense
_______
Common stock
_______
Accounts receivable
_______
Income tax expense
_______
Dividends
_______
Property and equipment
_______
Retained earnings
Accounts payable
Selling expense
Common stock
Accounts receivable
Income tax expense
Dividends
Property and equipment
109) Rose Corporation began operations on January 2, 2019. During 2019, Rose made cash and
credit sales totaling $500,000 and collected $420,000 in cash from its customers. Rose purchased
inventory costing $250,000, paid $15,000 for dividends and the cost of goods sold was $210,000.
Also, the corporation incurred the following expenses during 2019:
Salary expense
$80,000
Interest expense
5,000
Insurance expense
4,000
Supplies expense
6,000
Income tax expense
34,000
1. Prepare an income statement showing revenues, expenses, income before income taxes,
income tax expense, and net income for the year ended December 31, 2019.
2. Based on the above information, what is the amount of accounts receivable on the balance
sheet prepared as of December 31, 2019?
3. Based on the above information, what is the amount of retained earnings on the balance sheet
prepared as of December 31, 2019?
Cost of goods sold
Salary expense
Interest expense
Insurance expense
Supplies expense
Income before income taxes
Income tax expense
Net income
59
110) Cosmos Corporation was established on December 31, 2018, by a group of investors who
invested a total of $1,000,000 for shares of the new corporation’s common stock. During the
month of January 2019, Cosmos provided services to customers for which the total revenue was
$100,000. Of this amount, $10,000 had not been collected by the end of January. Cosmos
recorded salary expense of $20,000, of which 90% had been paid by the end of the month; rent
expense of $5,000, which had been paid on January 1; and other expenses of $12,000, which had
been paid by check. On January 31, 2019, Cosmos purchased a van by paying cash of $30,000.
There were no other transactions that affected cash.
1. In which section of the statement of cash flows would the amount of cash paid for rent be
reported?
2. In which section of the statement of cash flows would the amount of cash paid for the van
purchase be reported?
3. By how much did Cosmos’s cash increase or decrease during January 2019?
4. What was Cosmos’s net income or net loss (after income tax expense) for the month of
January 2019? The income tax expense was $18,900.
5. Explain why the net increase or decrease in cash for a business generally will be different
than the net income, or net loss, for the same period.