Chapter 1—Financial Accounting Key
1. Which of the following underlying assumptions for the conceptual framework is the reason the dollar is used
in the preparation of financial statements?
2. Which of the following is an assumption made in the preparation of the financial statements?
3. The time period assumption is necessary because:
4. The going concern assumption is concerned with:
5. Which of the following concepts relates to separating the reporting of business and personal economic
transactions?
6. “Revenues” are best described as:
7. Which of the following best describes the term “expenses”?
8. Which statement demonstrates the financial success or failure of the company over that specific period of
time?
A. Statement of changes in stockholders’ equity
9. The resources used to generate revenues during a period are called:
10. Which of the following is the correct date format for the financial statement heading?
11. Which financial statement would you analyze to determine its operating performance for the past year?
12. Doughtry’s Pet Shop reported a net loss of $1,500,000 and total expenses of $2,900,000. How much were
the total sales?
A. $4,400,000
13. The income statement shows:
14. Expenses can be matched against revenues:
15. What does the phrase, “Revenue is recognized when earned” mean?
A. Revenue is recorded in the accounting records when the goods are received from a supplier, and reported on
the income statement when sold to the customer.
16. “Matching principle” is best described as:
17. Monaco Lawn Service Company used $250 of fuel to mow customer lawns in June. The fuel was purchased
on account and due in July. Fuel Expense should be recorded in:
18. Monaco Lawn Service Company creates revenue each time:
19. IPOD CORPORATION
IPOD Corporations’ end-of-year Balance Sheet consisted of the following amounts.
Cash
$ 180,000
Accounts receivable
$700,000
Property, plant & equipment
950,000
Long-term debt
600,000
Capital stock
1,000,000
Accounts payable
350,000
Retained earnings
?
Inventory
540,000
Refer to the information provided above for IPOD Corporation.What amount should IPOD report on its balance sheet for total assets?
20. IPOD CORPORATION
IPOD Corporations’ end-of-year Balance Sheet consisted of the following amounts.
Cash
$ 180,000
Accounts receivable
$700,000
Property, plant & equipment
950,000
Long-term debt
600,000
Capital stock
1,000,000
Accounts payable
350,000
Retained earnings
?
Inventory
540,000
Refer to the information provided above for IPOD Corporation. What is IPOD’s retained earnings balance at the end of the current year?
21. Peck Company
The Peck Company reported the following items on its financial statements for the year ending December 31,
2012.
Sales
$1,560,000
Cost of sales
$1,400,000
Selling, general and
Other expense
30,000
administrative expense
40,000
Dividends
10,000
Income tax expense
25,000
Refer to the information provided above for Peck Company. The Income Statement of Peck will report net income for the current year in the amount
of:
22. Peck Company
The Peck Company reported the following items on its financial statements for the year ending December 31,
2012.
Sales
$1,560,000
Cost of sales
$1,400,000
Selling, general and
Other expense
30,000
administrative expense
40,000
Dividends
10,000
Income tax expense
25,000
23. Ponzi Corporation
Ponzi Corporation reported the following information for the year ended December 31, 2012.
Net income
$100,000
Dividends
6,000
Retained earnings at December 31, 2012
$120,000
Refer to the information provided above for Ponzi Corporation. What was the balance of retained earnings at January 1, 2012?
24. Ponzi Corporation
Ponzi Corporation reported the following information for the year ended December 31, 2012.
Net income
$100,000
Dividends
6,000
Retained earnings at December 31, 2012
$120,000
Refer to the information provided above for Ponzi Corporation. What was the economic effect of the payment of Ponzi’s dividends?
25. Which of the following terms best describes a distribution of the net income of a corporation to its owners?
26. You are a potential creditor and are concerned that a particular company you are ready to give a loan to
might have too much debt. Which financial statement would provide you information needed in order to
evaluate your concern?
27. Which financial statement would you refer to in order to determine how many resources (assets) the
company owns?
28. Which one of the following events creates a liability for a business?
29. Which of the following is a correct fundamental accounting equation?
30. On January 1, 2012, Blackstone Company reported assets of $1,000,000 and liabilities of $600,000. During
2012 assets decreased by $200,000 and Equity decreased $250,000. What is the amount of Equity on December
31, 2012.
31. Which one of the following items appears on a balance sheet?
32. Who among the following generally lends funds to a business entity and expects repayment of the funds?
33. Who among the following invest funds into a business and are considered owners?
34. Which one of the following financial statements reports an entity’s financial position at a specific date?
35. Ranger Company has assets of $5,000,000, liabilities of $3,000,000, and retained earnings of $1,200,000.
How much is total equity?
36. “Economic resources” are known as:
37. The assets and liabilities of the company are $175,000 and $40,000, respectively. Equity should equal:
38. Liabilities are reported on the:
39. Which of the following is not an asset?
40. How is the balance sheet linked to the other financial statements?
41. Which of the following best describes the term “retained earnings” of a company?
42. Which one of the following equations represents the statement of retained earnings activity?
43. Four financial statements are usually prepared for a business. The statement of cash flows is usually
prepared last. The retained earnings statement (RE), the balance sheet (B), and the income statement (I) are
prepared in a certain order to obtain information needed for the next statement. In what order are these three
statements prepared?
44. Bailout Corporation
Bailout Corporation reported the following information for the year ended December 31, 2012.
Revenues
$2,500,000
Expenses
2,000,000
Retained earnings at December 31, 2011
100,000
Retained earnings at December 31, 2012
450,000
Refer to the selected information provided for Bailout Corporation. How much was paid out in dividends in 2012?
45. Jetson Corporation
Jetson Corporation reported the following information for the year ended December 31, 2012.
Revenue
Expenses
Dividends
Retained earnings at December 31, 2012
Refer to the selected information provided for Jetson Corporation. What was the retained earnings balance on December 31, 2011?
46. On January 1, 2012, Money Company’s balance in retained earnings was $10,000,000. At the end of the
year, December 31, 2012, the balance in retained earnings was $9,400,000. During 2012, the company earned
net income of $440,000. How much were dividends?
47. The statement of cash flows has which of the following economic activity categories?
48. Which one of the following is not one of the three business activities as shown in statement of cash flows?
49. Which one of the following is not one of the activities on the statement of cash flows?
50. Which of the following best describes a company’s operating activities?
51. If stockholders want to know how money flowed into and out of the company, what financial statement
would they use?
52. Cash investments made by stockholders in exchange for capital stock in a business are reported on the
statement of cash flows in the:
53. Which one of the following is a correct basic structure of the cash flow statement?
54. Cash received from customers for mowing their lawns is reported on the statement of cash flows in the:
55. Cash used to purchase a truck to transport lawn mowers and other tools to customer locations is reported on
56. Which one of the following financial statements shows the end of the year cash balance for a business
entity?
57. Tarp Corporation
Beginning retained earnings
$550,000
Ending retained earnings
700,000
Dividends paid
100,000
Revenue
525,000
Refer to the selected information provided for Tarp Corporation. What is the net income for Tarp Corporation?
58. Tarp Corporation
Beginning retained earnings
$550,000
Ending retained earnings
700,000
Dividends paid
100,000
Revenue
525,000
Refer to the selected information provided for Tarp Corporation. The company’s expenses are:
59. If a company has $10,500,000 of revenues, declares and pays $550,000 in dividends, and has net income of
$1,600,000, how much were expenses for the year?