Chapter 1
77. 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
Multiple Choice
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78. 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
Multiple Choice
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Bloom’s: Remembering
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Chapter 1
79. 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.
Financial Accounting Standards Board.
Multiple Choice
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Bloom’s: Remembering
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80. 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.
Multiple Choice
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Bloom’s: Understanding
Chapter 1
81. 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
Multiple Choice
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United States – AK – DISC: AICPA: FN-Measurement
Bloom’s: Understanding
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7/19/2016 9:44 AM
82. 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.
Multiple Choice
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Chapter 1
83. 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
Multiple Choice
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Bloom’s: Understanding
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84. Name the three different types of businesses that operate for profit and their respective characteristics.
Subjective Short Answer
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Bloom’s: Understanding
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Chapter 1
85. Name and describe the three forms of businesses and their advantages and disadvantages (if any).
Proprietorship: owned by one individual
Partnership: owned by two or more individuals
86. For each of the following companies, identify whether it is a service, merchandising, or manufacturing business.
A.
Dillards
B.
Time Warner Cable
C.
Kohl’s
D.
Ford Motor Co.
E.
Applebee’s
F.
Sylvania
G.
Best Buy
Chapter 1
H.
GAP
I.
H & R Block
Merchandising
Service
Merchandising
Manufacturing
Service
Manufacturing
Merchandising
H.
Merchandising
I.
Service
87. How do businesses make money? What strategies can they use to gain a competitive advantage?
Chapter 1
88. Describe business stakeholders. State the classification of business stakeholders.
(1)
Capital market stakeholder
(2)
Product or service market stakeholder
(3)
Government stakeholder
(4)
Internal stakeholder
Easy
Subjective Short Answer
False
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89. Indicate whether each of the following activities would be reported on the statement of cash flows as an operating
activity, an investing activity, a financing activity, or does not appear on the statement of cash flows.
(a)
Cash paid for building
(b)
Cash paid to suppliers
(c)
Cash paid for dividends
(d)
Cash received from customers
(e)
Cash received from the sale of capital stock.
(f)
Cash received from the sale of a building
(g)
Borrowed cash from a bank
(a)
Investing activity
(b)
Operating activity
(c)
Financing activity
(d)
Operating activity
(e)
Financing activity
(f)
Investing activity
(g)
Financing activity
Challenging
Subjective Short Answer
JFND-GO3A-EW4R-GOT3
Chapter 1
90. Define accounting and its role in business.
91. What is the basic accounting equation, and which financial statement is prepared from this equation?
Chapter 1
92. Following are the financial statement data for Degen Temporary Services at December 31, 2016. Prepare Degen’s
income statement.
Accounts Payable
$ 850
Accounts Receivable
780
Cash
425
Common Stock
600
Dividends
200
Insurance Expense
75
Office Equipment
1,500
Retained Earnings, January 1, 2016
370
Salaries Expense
525
Notes Payable
40
Service Revenue
1,750
Inventory
35
Supplies Expense
50
Degen Temporary Services
Income Statement
For the Year Ended December 31, 2016
Revenues:
Expenses:
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Chapter 1
93. Three different companies—A, B, and C—have the same balance sheet at the beginning and the end of a year. These are
summarized below:
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 company below, 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.
Company A
Company B
Company C
Subjective Short Answer
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Subjective Short Answer
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United States – DISC: – ACBSP: APC–09 – Financial Statements
United States – AK – DISC: AICPA: FN-Measurement
Bloom’s: Applying
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Chapter 1
94. Fill in the missing amounts of the following balance sheet:
Prova Company
Balance Sheet
December 31, 2016
Assets
Cash
$ 3,300
Accounts Receivable
2,400
Supplies
(a)
Inventory
5,700
Equipment
7,400
Land
9,250
Total Assets
$32,550
Liabilities
Accounts Payable
$ 850
Notes Payable
(b)
Total Liabilities
$ (c)
Stockholders’ Equity
Common Stock
$18,500
Retained Earnings
4,200
Total Stockholders’ Equity
22,700
Total Liabilities and Stockholders’ Equity
$ (d)
Challenging
Subjective Short Answer
False
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Bloom’s: Applying
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Chapter 1
95. Classify the following as an asset, liability, revenue, or expense.
(1)
Unearned revenue
(2)
Office equipment
(3)
Wages payable
(4)
Salary expense
(5)
Dividends payable
(6)
Art fees earned
(7)
Prepaid rent
(8)
Accounts receivable
(9)
Income tax expense
(10)
Office supplies
(1)
Liability
(2)
(3)
Liability
(4)
Expense
(5)
Liability
(6)
Revenue
(7)
(8)
(9)
Expense
(10)
Moderate
Subjective Short Answer
False
SACC.WARR.18.1-4 – LO: 01.04
United States – BUSPROG: Analytic
Bloom’s: Understanding
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JFND-GO3A-EW4R-GOTT
96. Match the following items with the appropriate financial statement:
a.
Income statement
b.
Balance sheet
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Chapter 1
c.
Retained earnings statement
d.
Statement of cash flows
(1)
Cash
(2)
Salary expense
(3)
Unearned revenue
(4)
Depreciation expense
(5)
Capital stock
(6)
Cash flows from operating activities
(7)
Accounts receivable
(8)
Beginning balance of retained earnings
(9)
Notes payable
(10)
Accounts payable
(11)
Changes in current assets and current liabilities
(12)
Total expenses
(1)
Balance sheet
(2)
Income statement
(3)
Balance sheet
(4)
Income statement
(5)
Balance sheet
(6)
Statement of cash flows
(7)
Balance sheet
(8)
Retained earnings statement
(9)
Balance sheet
(10)
Balance sheet
(11)
Statement of cash flows
(12)
Income statement
Challenging
Subjective Short Answer
False
SACC.WARR.18.1-4 – LO: 01.04
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Bloom’s: Understanding
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Chapter 1
97. Review COCA-COLA’S financial statements and answer the following questions:
(1)
How are Coke’s numbers reported (in what denomination)?
(2)
What is Coke’s net operating revenue for 2008?
(3)
What is Coke’s cost of goods sold for 2008?
(4)
What is Coke’s net income 2008?
(5)
What is Coke’s percent of interest expense to net operating revenue on its
2008 income statement?
(6)
What is Coke’s percent of increase in net operating revenue from 2007 to
2008?
(1)
(2)
$31,944,000
(3)
$11,374,000
(4)
$5,807,000
(5)
438/31,944 = 1.37%
(6)
(31,944 – 28,857)/28,857 = 10.7%
Challenging
Subjective Short Answer
False
Coke income statement
SACC.WARR.18.1-4 – LO: 01.04
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Bloom’s: Applying
Chapter 1
98. Review COCA-COLA’S financial statements and answer the following questions:
Chapter 1
(1)
What is Coke’s percent of current assets to total assets on its December 31, 2008
balance sheet?
(2)
What is Coke’s percentage of current liabilities to total stockholders’ equity on its
December 31, 2008 balance sheet?
(3)
What is the percentage increase in cash and cash equivalents from 2007 to 2008?
(4)
What percentage did total assets decrease from 2007 to 2008?
(1)
12,176/40,519 = 30.05%
(2)
12,988/20,472 = 63.44%
(3)
(4,701 – 4,093)/4,093 = 14.85%
(4)
(40,519 – 43,269)/43,269 = (6.36%)
Challenging
Subjective Short Answer
False
Coke balance sheet
SACC.WARR.18.1-4 – LO: 01.04
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United States – DISC: – ACBSP: APC–23 – Financial Statement Analysis
Bloom’s: Applying
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99. On May 31, 2016, Deana’s Services Company had account balances as follows:
Accounts payable
$ 9,900
Accounts receivable
26,950
Cash
11,390
Fees earned
70,800
Insurance expense
1,475
Land
74,400
Miscellaneous expense
1,510
Prepaid insurance
2,000
Rent expense
8,000
Salary expense
35,300
Dividends
15,100
Supplies
950
Supplies expense
825
Utilities expense
3,800
Capital stock
81,000
Retained earnings (beginning balance on May 1, 2016)
20,000
Present, in good form, (a) an income statement for May, (b) a statement of shareholders’ equity for May, and (c) a balance
sheet as of May 31.
(a)
Chapter 1
Chapter 1
100. Match each statement with the appropriate accounting concept. (Some items may not be used. Others may be used
more than once.)
a.
Accounting period concept
b.
Adequate disclosure concept
c.
Business entity concept
d.
Cost concept
e.
Going concern concept
f.
Matching concept
g.
Objectivity concept
h.
Unit of measure concept
(1)
Owners’ transactions are separate from business transactions.
(2)
Financial statements are prepared at the end of each year.
(3)
Land purchased for $50,000, 10 years ago, is reported on the Balance Sheet at $50,000.
(4)
December rent expense paid in January is reported with the December revenues.
(5)
All transactions are recorded and reported in dollars.
(6)
Providing a summary of significant accounting policies
(7)
Assumes that IBM will continue as a corporation forever
(8)
The length of time left on debt obligations is shown.
(1)
c
(2)
a
(3)
(4)
(5)
(6)
(7)
e
(8)
Moderate
Subjective Short Answer
False
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United States – BUSPROG: Analytic
United States – AK – DISC: AICPA: FN-Measurement
Bloom’s: Understanding
Bloom’s: Applying
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JFND-GO3A-EW4R-GOTI
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Chapter 1
101. 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%
Moderate
Multiple Choice
False
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Bloom’s: Applying
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