Exam
Name___________________________________
TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false.
1)
Every business, regardless of its size, requires a full–time accountant.
1)
2)
Every business, regardless of its size, should hire an accountant to help it set up its books.
2)
3)
The business form that is equivalent to the personal cash flow statement is the income statement.
3)
4)
The business form that is equivalent to the personal statement of financial position is the income
statement.
4)
5)
The business form that is equivalent to the personal cash flow statement is the balance sheet.
5)
6)
The business form that is equivalent to the personal statement of financial position is the balance
sheet.
6)
7)
A refund of the purchase price, increased warranty, or partial credit on the next purchase would be
listed on the income statement as returns and allowances.
7)
8)
A refund of the purchase price, increased warranty, or partial credit on the next purchase would be
listed on the income statement as cost of goods sold.
8)
9)
Liquidity is how fast an asset can be converted to cash.
9)
10)
U.S. government savings bonds are the most liquid asset that we can own because they can be
converted to cash at any bank.
10)
11)
Joan has a $100,000 mortgage on her commercial building. This would be carried on her balance
sheet as long–term debt.
11)
12)
Joan has a $100,000 mortgage on her commercial building. This would be carried on her balance
sheet as a current liability.
12)
13)
How owner’s equity is shown on the balance sheet for a partnership is based on the partnership
agreement.
13)
14)
Public corporations have the ability to raise large quantities of cash by selling stocks and bonds.
14)
15)
Partnerships have the ability to raise large quantities of cash by selling stocks and bonds.
15)
16)
The income statement shows the cash flows of a business during the accounting period.
16)
17)
Medicare payments for both the employer and employee are not subject to an annual limit.
17)
18)
The employer’s contribution to Social Security is 6.20% of the employee’s salary.
18)
19)
The statement of cash flows is based on the comparison of two consecutive balance sheets.
19)
20)
The first section of the statement of cash flows is cash flow from financing activities.
20)
21)
An increase in accounts receivables is a cash inflow.
21)
22)
An increase in inventory is a cash outflow.
22)
23)
The general ledger uses a chart of accounts that lists every transaction of the business.
23)
24)
The general ledger uses a chart of accounts that lists only those transactions which are liabilities.
24)
25)
Cash flow from operating activities is the first item on the statement of cash flows.
25)
26)
In order to create a statement of cash flows, depreciation must be subtracted from net income.
26)
27)
An increase in accounts receivable from last year’s balance sheet to this year’s balance sheet
indicates that the business experienced a cash outflow.
27)
28)
Free cash flow is cash flow from operations minus estimated capital expenditures.
28)
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
29)
Public corporations require independent audits due to requirements established by the
29)
A)
Small Business Administration (SBA).
B)
Financial Accounting Standards Board (FASB).
C)
Securities and Exchange Commission (SEC).
D)
Federal Reserve (Fed).
E)
Occupational Safety and Health Administration (OSHA).
30)
Variable expenses include all of the following EXCEPT
30)
A)
insurance.
B)
automobile maintenance.
C)
clothing.
D)
gas.
E)
food.
31)
Expenses that are contractual in nature and are normally paid every month are
31)
A)
monthly expenses.
B)
automatic expenses.
C)
variable expenses.
D)
accounting expenses.
E)
fixed expenses.
32)
The normal accounting period for a business is one
32)
A)
quarter.
B)
year.
C)
week.
D)
month.
33)
The income statement shows gross profit, which is equal to
33)
A)
gross revenues minus returns and allowances.
B)
net sales minus cost of goods sold.
C)
earnings before taxes minus taxes.
D)
operating income minus operating expenses.
E)
operating income minus interest.
34)
The income statement shows net profit, which is equal to
34)
A)
gross revenues minus returns and allowances.
B)
operating income minus operating expenses.
C)
net sales minus cost of goods sold.
D)
earnings before taxes minus taxes.
E)
operating income minus interest.
35)
The income statement shows net sales, which is equal to
35)
A)
earnings before taxes minus taxes.
B)
gross revenues minus returns and allowances.
C)
operating income minus operating expenses.
D)
operating income minus interest.
E)
net sales minus cost of goods sold.
36)
The income statement shows earnings before taxes, which is equal to
36)
A)
net sales minus cost of goods sold.
B)
operating income minus interest.
C)
gross revenues minus returns and allowances.
D)
operating income minus operating expenses.
E)
earnings before taxes minus taxes.
37)
For a retail firm that sells clothing, which of the following would be considered part of the cost of
goods sold?
37)
A)
price paid for dresses to be sold
B)
freight
C)
wages paid to sales clerks
D)
A and B above
E)
all of the above
38)
For a manufacturing firm that makes computers, which of the following would NOT be considered
part of the cost of goods sold?
38)
A)
speakers
B)
accountant‘s wages
C)
disk drives
D)
assembly line wages
E)
memory chips
39)
Which of the following would be considered to be an operating expense for a computer
manufacturing firm?
39)
A)
assembly line wages
B)
accountant‘s wages
C)
disk drives
D)
speakers
E)
memory chips
40)
For most businesses, operating expenses include
40)
A)
salaries for executives and administrative personnel, raw materials used in manufacturing,
rent, insurance, utilities, and advertising expenses.
B)
salaries for executives and administrative personnel, cost of merchandise to be sold, rent,
insurance, utilities, and advertising expenses.
C)
salaries for executives and administrative personnel, rent, freight on items to be sold,
insurance, utilities, and advertising expenses.
D)
salaries for executives, administrative personnel, and assembly line workers; rent; insurance;
utilities; and advertising expenses.
E)
salaries for executives and administrative personnel, rent, insurance, utilities, and advertising
expenses.
41)
Net income on the income statement is obtained after subtracting taxes for the
41)
A)
sole proprietorship.
B)
corporation.
C)
partnership.
D)
Subchapter S corporation.
E)
all of the above.
42)
The personal statement of financial position and the balance sheet show the position of the
individual or firm
42)
A)
for a period of time, which is normally one year.
B)
for the accounting period, as determined by the business firm.
C)
with a beginning and ending date.
D)
as of a specific date.
E)
for the accounting period, as determined by the Internal Revenue Service.
43)
Current assets are assets that will normally be converted to cash during
43)
A)
the current month.
B)
the next business year.
C)
the next week.
D)
the accounting year.
E)
all of the above.
44)
The formula for the basic accounting equation is
44)
A)
OWNER‘S EQUITY = TOTAL LIABILITIES – TOTAL ASSETS.
B)
OWNER‘S EQUITY = TOTAL ASSETS + TOTAL LIABILITIES.
C)
TOTAL ASSETS = TOTAL LIABILITIES + OWNER’S EQUITY.
D)
TOTAL ASSETS = TOTAL LIABILITIES – OWNER’S EQUITY.
E)
TOTAL LIABILITIES = TOTAL ASSETS + OWNER’S EQUITY.
45)
Current assets include
45)
A)
inventory.
B)
accounts receivable.
C)
savings.
D)
cash.
E)
all of the above.
46)
Current assets include all of the following EXCEPT
46)
A)
buildings.
B)
cash.
C)
savings.
D)
inventory.
E)
accounts receivable.
47)
Fixed assets are listed on the business balance sheet at the ________ and on the individual’s
statement of financial position at the ________.
47)
A)
price paid for the asset; price paid for the asset
B)
current market value; current market value
C)
current market value; price paid for the asset
D)
price paid for the asset; current market value
48)
Which of the following fixed assets are always carried on the business books at the price paid for
the asset, and cannot be depreciated?
48)
A)
store fixtures
B)
land
C)
machinery
D)
equipment
E)
buildings
49)
Current assets are assets ________ and fixed assets are assets ________.
49)
A)
converted to cash during the accounting year; converted to cash during the accounting year
B)
that have an expected life in excess of one year; that have an expected life in excess of one
year
C)
that have an expected life in excess of one year; converted to cash during the accounting year
D)
converted to cash during the accounting year; that have an expected life in excess of one year
50)
Alex bought $50,000 worth of computers for his firm; he will pay the vendor for these computers
on the fifteenth of next month. These items would be carried on the ________ and listed as
________.
50)
A)
balance sheet; accounts payable
B)
balance sheet; notes payable
C)
income statement; notes payable
D)
income statement; accounts payable
E)
none of the above
51)
Total assets on the balance sheet include
51)
A)
current assets + fixed assets + depreciation.
B)
current assets + fixed assets – depreciation.
C)
current assets – fixed assets + depreciation.
D)
current assets – fixed assets – depreciation.
E)
none of the above.
52)
The Tom Smith Corporation has the following items: Cash, $5,000; Machinery, $50,000; Building,
$150,000; Note payable bank, $10,000; Savings, $10,000; Long–term debt, $50,000; Accounts
payable, $30,000; Taxes payable, $5,000; Accounts receivable, $30,000; Inventory, $10,000;
Depreciation Building, $35,000; Depreciation Machinery, $25,000; Land $50,000. Current assets for
this Corporation are
52)
A)
$45,000.
B)
$55,000.
C)
$95,000.
D)
$155,000.
E)
$190,000.
53)
The Tom Smith Corporation has the following items: Cash, $5,000; Machinery, $50,000; Building,
$150,000; Note payable bank, $10,000; Savings, $10,000; Long–term debt, $50,000; Accounts
payable, $30,000; Taxes payable, $5,000; Accounts receivable, $30,000; Inventory, $10,000;
Depreciation Building, $35,000; Depreciation Machinery, $25,000; Land $50,000. Current liabilities
for this Corporation are
53)
A)
$45,000.
B)
$55,000.
C)
$95,000.
D)
$155,000.
E)
$190,000.
54)
The Tom Smith Corporation has the following items: Cash, $5,000; Machinery, $50,000; Building,
$150,000; Note payable bank, $10,000; Savings, $10,000; Long–term debt, $50,000; Accounts
payable, $30,000; Taxes payable, $5,000; Accounts receivable, $30,000; Inventory, $10,000;
Depreciation Building, $35,000; Depreciation Machinery, $25,000; Land $50,000. Owner’s equity for
this Corporation are
54)
A)
$45,000.
B)
$55,000.
C)
$95,000.
D)
$155,000.
E)
$190,000.
55)
The Tom Smith Corporation has the following items: Cash, $5,000; Machinery, $50,000; Building,
$150,000; Note payable bank, $10,000; Savings, $10,000; Long–term debt, $50,000; Accounts
payable, $30,000; Taxes payable, $5,000; Accounts receivable, $30,000; Inventory, $10,000;
Depreciation Building, $35,000; Depreciation Machinery, $25,000; Land $50,000. Total liabilities for
this Corporation are
55)
A)
$45,000.
B)
$55,000.
C)
$95,000.
D)
$155,000.
E)
$190,000.
56)
The Tom Smith Corporation has the following items: Cash, $5,000; Machinery, $50,000; Building,
$150,000; Note payable bank, $10,000; Savings, $10,000; Long–term debt, $50,000; Accounts
payable, $30,000; Taxes payable, $5,000; Accounts receivable, $30,000; Inventory, $10,000;
Depreciation Building, $35,000; Depreciation Machinery, $25,000; Land $50,000. Fixed assets for
this Corporation are
56)
A)
$45,000.
B)
$55,000.
C)
$95,000.
D)
$155,000.
E)
$190,000.
57)
The Tom Smith Corporation has the following items: Cash, $5,000; Machinery, $50,000; Building,
$150,000; Note payable bank, $10,000; Savings, $10,000; Long–term debt, $50,000; Accounts
payable, $30,000; Taxes payable, $5,000; Accounts receivable, $30,000; Inventory, $10,000;
Depreciation Building, $35,000; Depreciation Machinery, $25,000; Land $50,000. Total assets for this
Corporation are
57)
A)
$55,000.
B)
$95,000.
C)
$155,000.
D)
$190,000.
E)
$245,000.
58)
The actual value of a business can easily be found by finding
58)
A)
book value on the cash flow statement.
B)
book value on the income statement.
C)
book value on the balance sheet.
D)
all of the above.
E)
none of the above.
59)
Janet has a company that pays all employees a salary on the first and the fifteenth of the month.
Her normal payroll is $10,000 per pay period. On the last day of the month she would have shown
59)
A)
$10,000 as cost of goods sold on the income statement.
B)
$10,000 as payroll payable on the balance sheet.
C)
$10,000 as a cash flow from operating expenses on the statement of cash flows.
D)
$10,000 as an operating expense under salaries on the income statement.
60)
Janet has a company that pays all employees a salary on the first and the fifteenth of the month.
Her normal payroll is $10,000 per pay period. On the last day of the month she would have shown
60)
A)
$10,000 as payroll payable on the balance sheet.
B)
$20,000 as a cash flow from operating expenses on the statement of cash flows.
C)
$20,000 as an operating expense under salaries on the income statement.
D)
All of the above.
E)
Not enough information is provided to answer this question.
61)
Cash received from the sale of stocks or bonds and the actual cash paid to others in the form of
dividends to owners and the payment of long–term debt would show up on the cash flow
statement under the category of
61)
A)
cash flows from financing activities.
B)
cash flows from investing activities.
C)
cash flows from operating activities.
D)
A and B above.
E)
B and C above.
62)
Cash paid in the acquisition of land, buildings, or equipment; loans to other companies; and the
proceeds from the sale of land, buildings, or equipment will show up on the cash flow statement
under the category of
62)
A)
cash flows from financing activities.
B)
cash flows from investing activities.
C)
cash flows from operating activities.
D)
A and B above.
E)
B and C above.
63)
Cash payments made to employees for wages and salaries; payments made to vendors for the
purchase of merchandise; taxes paid to government agencies; payments for rent, utilities, and
insurance will show up on the statement of cash flows under the category of
63)
A)
cash flows from financing activities.
B)
cash flows from investing activities.
C)
cash flows from operating activities.
D)
A and B above.
E)
B and C above.
64)
Depreciation expense
64)
A)
is subtracted from the statement of cash flows.
B)
is added to the statement of cash flows because it is not an expenditure.
C)
is listed on the income statement as a variable expense.
D)
appears only on the income statement.
65)
Which of the following is a cash outflow?
65)
A)
a decrease in accounts receivable
B)
an increase in accounts receivable
C)
an increase in accounts payable
D)
a decrease in inventory
66)
A company‘s net cash from operating activities is lower than its net income indicating that
66)
A)
too little cash is being spent.
B)
the company had less available funds than its net income.
C)
too much cash is being spent.
D)
none of the above.
67)
The final step in generating a statement of cash flows is to
67)
A)
sum up cash flow from operations, financing, and investment activities and transfer it to the
balance sheet.
B)
sum up cash flow from operations and transfer it to the balance sheet.
C)
sum up cash flow from investing activities and transfer it to the balance sheet.
D)
none of the above.
68)
Which of the following is true for free cash flow?
I. Free cash flow is easier to calculate than operating cash flow.
II. Estimated capital expenditures are subtracted from operating cash flow.
III. Estimated capital expenditures are added to operating cash flow.
IV. A negative free cash flow indicates that the company needs additional financing.
68)
A)
III & IV
B)
II & IV
C)
I, II, & III
D)
I & III
69)
The primary objective of Sarbanes–Oxley is to protect investors by
I. improving the accuracy of corporate disclosures.
II. loosening the reins on how information is reported.
III. improving the reliability of corporate disclosures.
IV. holding executive officers liable for the accuracy of corporate financial statements.
69)
A)
II only
B)
I, II, & IV
C)
I, III, &IV
D)
I, II, & III