Chapter 1: Accounting as a Form of Communication
True / False
1. An auto repair company is not an example of a manufacturer.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
REFERENCES:
pp. 4-5
LEARNING OBJECTIVES:
FACC.PONO.13.01-01 – LO: 01-01
KEYWORDS:
Bloom’s: Applying
2. A department store is an example of a manufacturer.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
REFERENCES:
pp. 4-5
LEARNING OBJECTIVES:
FACC.PONO.13.01-01 – LO: 01-01
KEYWORDS:
Bloom’s: Applying
3. The FASB is an external user that has the authority of the law to obtain certain accounting information.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
REFERENCES:
pp. 6-7
LEARNING OBJECTIVES:
FACC.PONO.13.01-02 – LO: 01-02
KEYWORDS:
Bloom’s: Remembering
4. A partnership is a business owned by two or more individuals.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
REFERENCES:
pp. 6-7
LEARNING OBJECTIVES:
FACC.PONO.13.01-02 – LO: 01-02
KEYWORDS:
Bloom’s: Remembering
5. Business entities and non-business entities are both organized to earn a profit.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
REFERENCES:
pp. 6-7
LEARNING OBJECTIVES:
FACC.PONO.13.01-02 – LO: 01-02
KEYWORDS:
Bloom’s: Remembering
6. Someone to whom a company has a debt is known as a creditor.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
REFERENCES:
pp. 8-10
LEARNING OBJECTIVES:
FACC.PONO.13.01-03 – LO: 01-03
KEYWORDS:
Bloom’s: Remembering
7. Assets can be tangible or intangible in nature.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
REFERENCES:
pp. 8-10
LEARNING OBJECTIVES:
FACC.PONO.13.01-03 – LO: 01-03
KEYWORDS:
Bloom’s: Remembering
8. An asset is a future economic benefit to a business.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
REFERENCES:
pp. 8-10
LEARNING OBJECTIVES:
FACC.PONO.13.01-03 – LO: 01-03
KEYWORDS:
Bloom’s: Remembering
9. An expense is an inflow of assets resulting from the sale of goods and services.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
REFERENCES:
pp. 8-10
LEARNING OBJECTIVES:
FACC.PONO.13.01-03 – LO: 01-03
KEYWORDS:
Bloom’s: Remembering
10. Capital stock indicates the owners’ ownership to a corporation.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
REFERENCES:
pp. 8-10
LEARNING OBJECTIVES:
FACC.PONO.13.01-03 – LO: 01-03
KEYWORDS:
Bloom’s: Remembering
11. Management accounting is the branch of accounting concerned with communication with internal management.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
REFERENCES:
p. 12
LEARNING OBJECTIVES:
FACC.PONO.13.01-04 – LO: 01-04
KEYWORDS:
Bloom’s: Remembering
12. External users of accounting information include present and potential stockholders, bankers and other creditors, and
management.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
REFERENCES:
pp. 11-12
LEARNING OBJECTIVES:
FACC.PONO.13.01-04 – LO: 01-04
KEYWORDS:
Bloom’s: Remembering
13. Bondholders are external users of company’s accounting information.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
REFERENCES:
pp. 11-12
LEARNING OBJECTIVES:
FACC.PONO.13.01-04 – LO: 01-04
KEYWORDS:
Bloom’s: Remembering
14. The income statement is sometimes called the statement of profit and loss.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
15. The income statement is a statement that summarizes revenues and expenses for a period.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
16. Assets may be used to satisfy business obligations and to carry on business operations.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
REFERENCES:
pp. 14-21-17
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
17. The amount of earnings distributed to stockholders can be found in the income statement.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
18. Profits from operating activities distributed to business owners are called bonuses.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
19. An entity’s liabilities come from three primary sources: creditors, investors, and profits retained in the business.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21-18
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
20. The balance sheet is linked to the retained earnings statement by the ending retained earnings balance.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21-19
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
21. A balance sheet provides information during a period of time, while the other basic financial statements provide
information on activities that occur over a point in time.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21-18
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
22. When an entity’s revenues exceed its expenses for a period of time, the entity will report net income.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
23. Owners’ equity is the residual interest that remains after deducting liabilities from assets.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
24. If a company prepares a statement of stockholders’ equity, net income is deducted to retained earnings on this
statement.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
25. Stockholders’ equity is owners’ equity in a corporation.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
26. The time period assumption assumes a company prepares financial statements every month.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
REFERENCES:
p. 25
LEARNING OBJECTIVES:
FACC.PONO.13.01-06 – LO: 01-06
KEYWORDS:
Bloom’s: Remembering
27. GAAP stands for Generally Accepted Accounting Procedures.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
REFERENCES:
p. 25
LEARNING OBJECTIVES:
FACC.PONO.13.01-06 – LO: 01-06
KEYWORDS:
Bloom’s: Remembering
28. Because market values are subjective, many assets are carried on the balance sheet at their acquisition cost.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
REFERENCES:
p. 24
LEARNING OBJECTIVES:
FACC.PONO.13.01-06 – LO: 01-06
KEYWORDS:
Bloom’s: Remembering
29. The term used to refer to an asset’s original cost is “fair market value.”
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
REFERENCES:
p. 24
LEARNING OBJECTIVES:
FACC.PONO.13.01-06 – LO: 01-06
KEYWORDS:
Bloom’s: Remembering
30. The going concern assumption infers that a company will continue to operate until a known date.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
REFERENCES:
pp. 24-25
LEARNING OBJECTIVES:
FACC.PONO.13.01-06 – LO: 01-06
KEYWORDS:
Bloom’s: Remembering
31. A company in the process of liquidation meets the requirements under the going concern assumption.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Moderate
REFERENCES:
pp. 24-25
LEARNING OBJECTIVES:
FACC.PONO.13.01-06 – LO: 01-06
KEYWORDS:
Bloom’s: Remembering
32. The International Accounting Standards Board (IASB) was created in order to develop worldwide accounting
standards that must be used for all financial statements prepared regardless of country.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
REFERENCES:
pp. 25-26
LEARNING OBJECTIVES:
FACC.PONO.13.01-07 – LO: 01-07
KEYWORDS:
Bloom’s: Remembering
33. The primary objective of external auditors is to provide assurance to stockholders and other users that the statements
are fairly presented.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
REFERENCES:
pp. 25-26
LEARNING OBJECTIVES:
FACC.PONO.13.01-07 – LO: 01-07
KEYWORDS:
Bloom’s: Remembering
34. The independent auditor’s report conveys whether or not the business followed GAAP.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Moderate
REFERENCES:
pp. 25-26
LEARNING OBJECTIVES:
FACC.PONO.13.01-07 – LO: 01-07
KEYWORDS:
Bloom’s: Remembering
35. The IASB is a branch of the FASB.
a.
True
b.
False
ANSWER:
False
DIFFICULTY:
Easy
REFERENCES:
pp. 25-26
LEARNING OBJECTIVES:
FACC.PONO.13.01-07 – LO: 01-07
KEYWORDS:
Bloom’s: Remembering
36. Information must be timely to be relevant.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
REFERENCES:
pp. 26-30
LEARNING OBJECTIVES:
FACC.PONO.13.01-08 – LO: 01-08
KEYWORDS:
Bloom’s: Remembering
37. According to the accounting profession, the purpose of financial reporting is to provide information about a company
that investors, lenders, and other creditors can use when deciding whether to provide resources to the entity.
a.
True
b.
False
ANSWER:
True
DIFFICULTY:
Easy
REFERENCES:
pp. 26-30
LEARNING OBJECTIVES:
FACC.PONO.13.01-08 – LO: 01-08
KEYWORDS:
Bloom’s: Remembering
Multiple Choice
38. Cross Country Busline is an example of a
a.
producer
b.
supplier
c.
retailer
d.
service provider
ANSWER:
d
DIFFICULTY:
Easy
REFERENCES:
pp. 4-5
LEARNING OBJECTIVES:
FACC.PONO.13.01-01 – LO: 01-01
KEYWORDS:
Bloom’s: Applying
39. All of the following are examples of manufacturers except:
a.
Whirlpool
b.
Boeing
c.
Amazon.com
d.
Ford
ANSWER:
c
DIFFICULTY:
Easy
REFERENCES:
pp. 4-5
LEARNING OBJECTIVES:
FACC.PONO.13.01-01 – LO: 01-01
KEYWORDS:
Bloom’s: Applying
40. The three forms of business entities are:
a.
Government, cooperatives, and philanthropic organizations
b.
Financing, investing, and operating
c.
Sole proprietorships, partnerships, and corporations
d.
Wholesaler, manufacturer, and retailer
ANSWER:
c
DIFFICULTY:
Easy
REFERENCES:
pp. 6-7
LEARNING OBJECTIVES:
FACC.PONO.13.01-02 – LO: 01-02
KEYWORDS:
Bloom’s: Remembering
41. Which of the following statements would be true if you own stock in a company?
a.
b.
c.
d.
ANSWER:
b
DIFFICULTY:
Moderate
REFERENCES:
pp. 6-7
LEARNING OBJECTIVES:
FACC.PONO.13.01-02 – LO: 01-02
KEYWORDS:
Bloom’s: Understanding
42. Which of the following statements best describes the term “revenues”?
a.
Revenues represent an outflow of assets resulting from the sale of goods or services.
b.
Revenues represent the dollar amount of bonds sold to the public.
c.
Revenues represent assets used or consumed in the sale of products or services.
d.
Revenues represent assets received from the sale of products or services.
ANSWER:
d
DIFFICULTY:
Moderate
REFERENCES:
pp. 8-10
LEARNING OBJECTIVES:
FACC.PONO.13.01-03 – LO: 01-03
KEYWORDS:
Bloom’s: Understanding
43. Which one of the following events involves a liability for a business?
a.
Loans to be repaid to banks
b.
Inventories purchased for cash
c.
Amounts invested by the owners
d.
Stock sold to the general public
ANSWER:
a
DIFFICULTY:
Moderate
REFERENCES:
pp. 8-10
LEARNING OBJECTIVES:
FACC.PONO.13.01-03 – LO: 01-03
KEYWORDS:
Bloom’s: Understanding
44. Which of the following best describes the term “expenses”?
a.
The amount of total profits earned by a business since it began operations.
b.
The amount of interest or claim that the owners have in the business.
c.
The future economic resources of a business entity.
d.
The outflow of assets resulting from the sale of goods and services.
ANSWER:
d
DIFFICULTY:
Easy
REFERENCES:
pp. 8-10
LEARNING OBJECTIVES:
FACC.PONO.13.01-03 – LO: 01-03
KEYWORDS:
Bloom’s: Understanding
45. The outflow of assets resulting from the sale of products and services is called a(n)
a.
asset
b.
liability
c.
revenue
d.
expense
ANSWER:
d
DIFFICULTY:
Easy
REFERENCES:
p. 10
LEARNING OBJECTIVES:
FACC.PONO.13.01-03 – LO: 01-03
KEYWORDS:
Bloom’s: Remembering
46. The costs of doing business through the sale of goods and services are called
a.
Net income
b.
Expenses
c.
Revenues
d.
Dividends
ANSWER:
b
DIFFICULTY:
Easy
REFERENCES:
pp. 8-10
LEARNING OBJECTIVES:
FACC.PONO.13.01-03 – LO: 01-03
KEYWORDS:
Bloom’s: Remembering
47. Which of the following best describes the term “equity”?
a.
The amount of total profits earned by a business since it began operations.
b.
The amount of interest or claim that the owners have in the business.
c.
The economic resources of a business entity.
d.
The cumulative profits earned by a business less any dividends distributed.
ANSWER:
b
DIFFICULTY:
Easy
REFERENCES:
pp. 8-10
LEARNING OBJECTIVES:
FACC.PONO.13.01-03 – LO: 01-03
KEYWORDS:
Bloom’s: Understanding
48. Which one of the following business decisions will most likely require financial information?
a.
The National Bank is reviewing the loan application from Petra’s Restaurant.
b.
Petra’s Restaurant is attempting to sell its stock to the public.
c.
The labor union representing Winn’s Fitness Spa employees is negotiating a pay raise as part of a new labor
agreement.
d.
All of these choices.
ANSWER:
d
DIFFICULTY:
Moderate
REFERENCES:
pp. 11-12
LEARNING OBJECTIVES:
FACC.PONO.13.01-04 – LO: 01-04
KEYWORDS:
Bloom’s: Applying
49. Which of the following would be internal users of accounting information?
a.
Customers and vendors
b.
Employees and managers
c.
Government and banks
d.
Employees and customers
ANSWER:
b
DIFFICULTY:
Easy
REFERENCES:
p. 13
LEARNING OBJECTIVES:
FACC.PONO.13.01-04 – LO: 01-04
KEYWORDS:
Bloom’s: Understanding
50. Which of the following would be classified as external users of financial statements?
a.
Stockholders and management of the company
b.
The controller of the company and a company’s stockholders
c.
The company’s marketing managers
d.
The creditors and stockholders of the company
ANSWER:
d
DIFFICULTY:
Easy
REFERENCES:
pp. 11-12
LEARNING OBJECTIVES:
FACC.PONO.13.01-04 – LO: 01-04
KEYWORDS:
Bloom’s: Understanding
51. Which one of the following is not an external user of financial information?
a.
IRS
b.
Company management
c.
Creditors
d.
Stockholders
ANSWER:
b
DIFFICULTY:
Easy
REFERENCES:
pp. 11-12
LEARNING OBJECTIVES:
FACC.PONO.13.01-04 – LO: 01-04
KEYWORDS:
Bloom’s: Understanding
52. Tavella Company is ready to sell its bonds. Which one of the following financial questions is most relevant to the
issue of the bonds and that investors will most likely want answered before they purchase the bonds?
a.
How many product lines did Clip Joint Company have last year?
b.
What will be Clip Joint Company’s cost to start operations in another city?
c.
How much debt does Clip Joint Company already have?
d.
Will Clip Joint Company pay dividends?
ANSWER:
c
DIFFICULTY:
Moderate
REFERENCES:
pp. 11-12
LEARNING OBJECTIVES:
FACC.PONO.13.01-04 – LO: 01-04
KEYWORDS:
Bloom’s: Applying
53. What is the name of the branch of accounting concerned with providing managers and administrators with information
to facilitate the planning and control of business operations?
a.
Financial Accounting
b.
Auditing
c.
Management Accounting
d.
Bookkeeping
ANSWER:
c
DIFFICULTY:
Easy
REFERENCES:
pp. 11-12
LEARNING OBJECTIVES:
FACC.PONO.13.01-04 – LO: 01-04
KEYWORDS:
Bloom’s: Remembering
54. Which of the following invests funds into a business and is considered an owner?
a.
Bankers
b.
Creditors
c.
Stockholders
d.
Lenders
ANSWER:
c
DIFFICULTY:
Easy
REFERENCES:
pp. 11-12
LEARNING OBJECTIVES:
FACC.PONO.13.01-04 – LO: 01-04
KEYWORDS:
Bloom’s: Remembering
55. Which one of the following is not one of the three activities included in the definition of accounting?
a.
Communicating
b.
Identifying
c.
Measuring
d.
Operating
ANSWER:
d
DIFFICULTY:
Easy
REFERENCES:
pp. 11-12
LEARNING OBJECTIVES:
FACC.PONO.13.01-04 – LO: 01-04
KEYWORDS:
Bloom’s: Remembering
56. Which one of the following is not an external user of financial statements?
a.
Suppliers
b.
Creditors
c.
The company’s controller
d.
None of these choices.
ANSWER:
c
DIFFICULTY:
Easy
REFERENCES:
pp. 11-12
LEARNING OBJECTIVES:
FACC.PONO.13.01-04 – LO: 01-04
KEYWORDS:
Bloom’s: Remembering
57. Which one of the following is least likely to be a user of financial information of a grocery store?
a.
The manager of the grocery store.
b.
The supplier of milk to the grocery store.
c.
A stockbroker looking for a possible investment.
d.
A customer at the grocery store.
ANSWER:
d
DIFFICULTY:
Easy
REFERENCES:
pp. 11-12
LEARNING OBJECTIVES:
FACC.PONO.13.01-04 – LO: 01-04
KEYWORDS:
Bloom’s: Understanding
58. Which one of the following groups is considered an internal user of financial statements?
a.
A bank reviewing a loan application from a corporation.
b.
The labor union representing employees of a company that is involved in labor negotiations
c.
The financial analysts for a brokerage firm who are preparing recommendations for the firm’s brokers on
companies in a certain industry,
d.
Factory managers that supervise production line workers.
ANSWER:
d
DIFFICULTY:
Easy
REFERENCES:
pp. 11-12
LEARNING OBJECTIVES:
FACC.PONO.13.01-04 – LO: 01-04
KEYWORDS:
Bloom’s: Understanding
59. Which of the following is an organization that lends funds to a business entity and expects repayment of the funds?
a.
A creditor
b.
A stockholder
c.
An owner
d.
A partner
ANSWER:
a
DIFFICULTY:
Easy
REFERENCES:
pp. 11-12
LEARNING OBJECTIVES:
FACC.PONO.13.01-04 – LO: 01-04
KEYWORDS:
Bloom’s: Remembering
60. You are a potential stockholder and are concerned that a particular company you are ready to invest in might have too
much debt. Which financial statement would provide you information needed in order to evaluate your concern?
a.
Income statement
b.
Balance sheet
c.
Statement of retained earnings
d.
Statement of public accounting
ANSWER:
b
DIFFICULTY:
Easy
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Understanding
61. Which financial statement would you analyze to determine if a company distributed any of its profits to its
shareholders?
a.
Balance Sheet
b.
Statement of Retained Earnings
c.
Income Statement
d.
Statement of Public Accounting
ANSWER:
b
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Understanding
62. Which financial statement would you refer to in order to determine whether a company owed funds to creditors?
a.
Statement of public accounting
b.
Statement of Retained Earnings
c.
Income Statement
d.
Balance sheet
ANSWER:
d
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Understanding
63. Which one of the following is an economic obligation for a business entity?
a.
Salaries paid to employees for services rendered
b.
Materials used in manufacturing products
c.
Amount owed to creditors
d.
Payment of rent for the next year
ANSWER:
c
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Understanding
64. Which one of the following is a correct expression of the accounting equation?
a.
Assets + Liabilities = Owners’ Equity
b.
Assets = Liabilities – Owners’ Equity
c.
Assets + Owners’ Equity = Liabilities
d.
Assets = Liabilities + Owners’ Equity
ANSWER:
d
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Understanding
65. How is the balance sheet linked to the other financial statements?
a.
The amount of retained earnings reported on the balance sheet is equal to net income.
b.
Retained earnings is added to total assets and reported on the balance sheet.
c.
Net income increases retained earnings on the statement of retained earnings, which ultimately increases
retained earnings on the balance sheet.
d.
There is no link between the balance sheet and other statements, as each contains different accounts and
provides different information.
ANSWER:
c
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Understanding
66. Which of the following is the correct date format for the financial statement heading?
a.
Balance sheet for the year ended June 30, 2016
b.
Income statement at December 31, 2016
c.
Balance sheet at December 31, 2016
d.
Statement of retained earnings at December 31, 2016
ANSWER:
c
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Understanding
67. Which of the following best describes the term “retained earnings”?
a.
The amount of total profits earned by a business since it began operations.
b.
The amount of interest or claim that the owners have on the assets of the business.
c.
The future economic resources of a business entity.
d.
The cumulative profits earned by the business less any dividends distributed.
ANSWER:
d
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Understanding
68. Which one of the following items is correct concerning the time element of financial statements?
a.
The balance sheet covers a period of time.
b.
The statement of retained earnings explains changes during a particular period.
c.
An income statement lists amounts at a specific point in time.
d.
Both the income statement and the balance sheet cover a period of time.
ANSWER:
b
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Understanding
69. Which one of the following items appears on a balance sheet?
a.
Accounts payable
b.
Sales revenue
c.
Utilities expense
d.
Cost of goods sold
ANSWER:
a
DIFFICULTY:
Easy
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
70. Which one of the following financial statements reports an entity’s financial position at a specific date?
a.
Balance sheet
b.
Statement of retained earnings
c.
Income statement
d.
Both the income statement and the balance sheet
ANSWER:
a
DIFFICULTY:
Easy
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
71. Which one of the following correctly represents one of the basic financial statement models?
a.
Assets – Liabilities = Net Income
b.
Assets + Liabilities = Owners’ Equity
c.
Revenues + Expenses = Net Income
d.
Beginning Retained Earnings + Net Income – Dividends = Ending Retained Earnings
ANSWER:
d
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
72. Which of the following statements is true?
a.
Profits distributed to the creditors are called dividends.
b.
The balance sheet shows the assets, liabilities, and profits of a company.
c.
Dividends are an expense, and are reported on the income statement as a deduction from net income.
d.
The income statement reports the revenues and expenses of a company.
ANSWER:
d
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Understanding
73. Which of the following terms best describes a distribution of the net income of a business to its owners?
a.
Revenue
b.
Monetary unit
c.
Earnings
d.
Dividends
ANSWER:
d
DIFFICULTY:
Easy
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
74. Which statement summarizes the income earned and the dividends paid?
a.
Statement of cash flows
b.
Statement of retained earnings
c.
Balance sheet
d.
Income statement
ANSWER:
b
DIFFICULTY:
Easy
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Remembering
75. Harbor City Corporation’s end-of-year balance sheet consisted of the following amounts:
Cash
$ 15,000
Accounts receivable
$50,000
Property, plant, and equipment
70,000
Long-term debt
40,000
Capital stock
100,000
Accounts payable
20,000
Retained earnings
?
Inventory
35,000
What amount should Harbor City report on its balance sheet for total assets?
a.
$110,000
b.
$155,000
c.
$170,000
d.
$190,000
ANSWER:
c
RATIONALE:
$15,000 + $50,000 + $70,000 + $35,000 = $170,000
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Analyzing
76. Sun City Corporation’s end-of-year balance sheet consisted of the following amounts:
Cash
$ 25,000
Accounts receivable
$ 70,000
Property, plant, and equipment
70,000
Long-term debt
40,000
Capital stock
100,000
Accounts payable
20,000
Retained earnings
?
Inventory
35,000
What amount should Sun City report on its balance sheet for total assets?
a.
$100,000
b.
$95,000
c.
$165,000
d.
$200,000
ANSWER:
d
RATIONALE:
$25,000 + $48,000 + $69,000 + $33,000 = $175,000
DIFFICULTY:
Moderate
REFERENCES:
pp. 14-21
LEARNING OBJECTIVES:
FACC.PONO.13.01-05 – LO: 01-05
KEYWORDS:
Bloom’s: Analyzing