Chapter 1: Accounting as a Form of Communication
77. 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 is Harbor City’s retained earnings balance at the end of the current year?
a.
$10,000
b.
$110,000
c.
$160,000
d.
$170,000
a
Assets: $15,000 + $70,000 + $50,000 + $35,000 = $170,000
Liabilities: $40,000 + $20,000 = $60,000
Owners’ equity: $170,000 – $60,000 = $110,000
Retained earnings: $110,000 – $100,000 = $10,000
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
78. Leary Corporation’s end-of-year balance sheet consisted of the following amounts:
Cash
$ 25,000
Accounts receivable
$ 46,000
Property, plant, and equipment
69,000
Long-term debt
41,000
Capital stock
107,000
Accounts payable
22,000
Retained earnings
?
Inventory
33,000
What is Leary’s retained earnings balance at the end of the current year?
a.
$10,000
b.
$3,000
c.
$66,000
d.
$110,000
b
Assets: $25,000 + $69,000 + $46,000 + $33,000 = $173,000
Liabilities: $41,000 + $22,000 = $63,000
Owners’ equity: $173,000 – $63,000 = $110,000
Retained earnings: $110,000 – $107,000 = $3,000
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
79. Leary Corporation’s end-of-year balance sheet consisted of the following amounts:
Cash
$ 25,000
Accounts receivable
$ 46,000
Property, plant & equipment
69,000
Long-term debt
41,000
Capital stock
107,000
Accounts payable
22,000
Retained earnings
?
Inventory
33,000
What is Leary’s total liabilities balance at the end of the current year?
a.
$3,000
b.
$110,000
c.
$63,000
d.
$173,000
c
Assets: $25,000 + $69,000 + $46,000 + $33,000 = $173,000
Liabilities: $41,000 + $22,000 = $63,000
Owners’ equity: $173,000 – $63,000 = $110,000
Retained earnings: $110,000 – $107,000 = $3,000
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
80. Murphy Corporation’s end-of-year balance sheet consisted of the following amounts:
Cash
$ 35,000
Accounts receivable
$ 46,000
Property, plant & equipment
69,000
Long-term debt
41,000
Capital stock
107,000
Accounts payable
22,000
Retained earnings
?
Inventory
33,000
What is Murphy’s owners’ equity balance at the end of the current year?
a.
$3,000
b.
$120,000
c.
$63,000
d.
$173,000
b
Assets: $35,000 + $69,000 + $46,000 + $33,000 = $183,000
Liabilities: $41,000 + $22,000 = $63,000
Owners’ equity: $183,000 – $63,000 = $120,000
Retained earnings: $120,000 – $107,000 = $13,000
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
81. Marcos Company reported the following items on its financial statements for the year ending December 31, 2016:
Sales
$ 560,000
Cost of goods sold
$400,000
Salary expense
40,000
Interest expense
30,000
Dividends
20,000
Income tax expense
25,000
How much will be reported as retained earnings on Marcos’ balance sheet at December 31, 2016, if this is the first year
of operations?
a.
$ 45,000
b.
$ 65,000
c.
$ 85,000
d.
Not enough information is provided.
a
$560,000 – $410,000 – $40,000 – $30,000 – $25,000 = $55,000
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
82. Las Palmas Company reported the following items on its financial statements for the year ending December 31, 2016:
Sales
$ 560,000
Cost of goods sold
$400,000
Salary expense
40,000
Interest expense
30,000
Dividends
30,000
Income tax expense
25,000
How much will be reported as retained earnings on Las Palmas’ balance sheet at December 31, 2016, if this is the first
year of operations?
a.
$ 45,000
b.
$ 35,000
c.
$ 85,000
d.
Not enough information is provided.
b
Net income: $560,000 – $400,000 – $40,000 – $30,000 – $25,000 = $65,000
Retained earnings: $65,000 – $30,000 = $35,000
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
83. Lori Corporation reported the following information for the year ended December 31, 2016:
Net income
$ 10,000
Dividends
6,000
Retained earnings at December 31, 2016
25,000
What was the balance of Lewis’ retained earnings at January 1, 2016?
a.
$21,000
b.
$29,000
c.
$31,000
d.
$35,000
b
$25,000 + $10,000 – $6,000 = $29,000
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
84. Lewis Corporation reported the following information for the year ended December 31, 2016:
Net income
$ 10,000
Dividends
6,000
Retained earnings at December 31, 2016
25,000
What was the economic effect of the payment of Lewis’ dividends?
a.
The dividend reduced net income for 2016.
b.
The dividend should be equal to net income if the company’s accounting equation is in balance.
c.
The dividends reduce total retained earnings for the year.
d.
The dividends must be paid whenever Raymond Corp. reports net income.
c
Easy
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
85. Volt Corp. reported the following information for the year ended December 31, 2016:
Revenues
$ 50,000
Expenses
20,000
Retained earnings at December 31, 2016
100,000
Retained earnings at December 31, 2015
105,000
How much was paid out in dividends by Volt in 2016?
a.
$ 20,000
b.
$ 25,000
c.
$ 30,000
d.
$ 50,000
b
$100,000 + $50,000 – $20,000 – X = $105,000
X = $25,000
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
86. Mobile Power Corp. reported the following information for the year ended December 31, 2016.
Revenue
$ 40,000
Expenses
23,000
Dividends
10,000
Retained earnings at December 31, 2016
175,000
What was the retained earnings balance for Mobile Power at December 31, 2015?
a.
$ 165,000
b.
$ 168,000
c.
$ 182,000
d.
$ 192,000
b
X + $17,000 – $10,000 = $175,000
X = $168,000
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
87. Native Dave’s Consultants had the following balance sheet amounts at the beginning of the year:
Total assets
$400,000
Total owner’s equity
150,000
During the year, total assets increased by $100,000 and total liabilities increased by $40,000. The company also paid
$30,000 in dividends. No other transactions occurred except revenues and expenses. How much is net income for the
year?
a.
$30,000
b.
$60,000
c.
$70,000
d.
$90,000
d
Assets: $400,000 + $100,000 = $500,000
Liabilities: ($400,000 – $150,000) + $40,000 = $290,000
Owners’ Equity at Year End: $500,000 – $290,000 = $210,000
Net Income: $210,000 – $150,000 + 30,000 = $90,000
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
88. On January 1, 2016, A-Best Company’s balance in retained earnings was $80,000. At the end of the year, December
31, 2016, the balance in retained earnings was $94,000. During 2016, the company earned net income of $40,000. How
much were dividends?
a.
$16,000
b.
$24,000
c.
$26,000
d.
$64,000
c
$80,000 + $40,000 – $94,000 = $26,000
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
89. On January 1, 2016, Francisco Company’s balance in retained earnings was $80,000. During 2016, the company
earned net income of $43,000 and paid $15,000 in dividends. Calculate the retained earnings balance at December 31,
2016.
a.
$42,000
b.
$90,000
c.
$98,000
d.
$108,000
d
$70,000 + $43,000 – $15,000 = $108,000
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
90. The following information is provided by the Ferrara Corporation:
Beginning retained earnings
$ 50,000
Ending retained earnings
70,000
Dividends declared and paid
10,000
Revenue
50,000
What is the net income for Ferrara Corp.?
a.
$10,000
b.
$20,000
c.
$30,000
d.
Unable to tell from the information provided.
c
$50,000 + X – $10,000 = $70,000
X = $30,000
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
91. The following information is provided by the Ferrara Corporation:
Beginning retained earnings
$ 50,000
Ending retained earnings
70,000
Dividends declared and paid
10,000
Revenue
50,000
Calculate Ferrara Corporation’s expenses.
a.
$20,000
b.
$30,000
c.
$40,000
d.
Cannot tell from the information provided.
a
$50,000 + X – $10,000 = $70,000
X = $30,000
Net Income $50,000 (Revenue) – $30,000 (Net Income) = $20,000 Expenses
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
92. If a company has $152,000 of revenues, declares and pays $55,000 in dividends, and has net income of $89,000, how
much were expenses for the year?
a.
$ 8,000
b.
$ 63,000
c.
$144,000
d.
Unable to determine the amount due to incomplete information.
b
$152,000 (Revenues) – $89,000 (Net Income) = $63,000 (Expenses)
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
93. Aloha Company reports the following information at December 31, 2016:
Revenue
$150,000
Cash
30,000
Accounts payable
40,000
Dividends
10,000
Expenses
85,000
What is Aloha Company’s net income?
a.
$ 15,000
b.
$ 45,000
c.
$ 55,000
d.
$ 65,000
d
$150,000 (Revenue) – $85,000 (Expenses) = $65,000 (Net Income)
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
94. Cerrato Company has assets of $350,000, liabilities of $130,000, and retained earnings of $180,000. How much is
total owners’ equity?
a.
$ 40,000
b.
$ 170,000
c.
$ 220,000
d.
$ 350,000
c
$350,000 (Assets) – $130,000 (Liabilities) = $220,000 Owners’ Equity
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
95. Gyro’s Shop reported a net loss of $15,000 and total expenses of $80,000. How much are total revenues?
a.
$ 15,000
b.
$ 65,000
c.
$ 95,000
d.
The answer cannot be determined from the information given.
b
$80,000 Total Expenses + ($15,000) Net Loss = $65,000 Total Revenues
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
96. Marcos Inc. had net income for 2016 of $40,000. It declared and paid a $3,500 cash dividend in 2016. If the
company’s retained earnings for the end of the year were $38,200, what was the company’s retained earnings balance at
the beginning of 2016?
a.
$81,700
b.
$74,700
c.
$5,300
d.
$1,700
d
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
97. Dimension Inc. had net income for 2016 of $24,000. It declared and paid a $13,000 cash dividend in 2016. If the
company’s retained earnings for the end of the year were $39,600, what was the company’s retained earnings balance at
the beginning of 2016?
a.
$28,600
b.
$50,600
c.
$76,600
d.
$2,600
a
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
98. At December 31, 2016, the accounting records of Tasty Foods Corporation contain the following:
Accounts payable
$16,000
Accounts receivable
$40,000
Land
$240,000
Cash
?
Capital stock
?
Equipment
$120,000
Building
$180,000
Notes payable
$190,000
Retained earnings
$160,000
If capital stock is $260,000, what is the December 31, 2016 cash balance?
a.
$46,000
b.
$506,000
c.
$94,000
d.
$86,000
a
Cash + $40,000 + $120,000 + $180,000 + $240,000 = $16,000 + $260,000 + $160,000 +
$190,000
Moderate
pp. 14-21-20
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
99. At December 31, 2016, the accounting records of Tasty Foods Corporation contain the following:
Accounts payable
$16,000
Accounts receivable
$40,000
Land
$240,000
Cash
?
Capital stock
?
Equipment
$120,000
Building
$180,000
Notes payable
$190,000
Retained earnings
$160,000
If Cash is $26,000, what is the December 31, 2016 capital stock balance?
a.
$272,000
b.
$240,000
c.
$220,000
d.
$400,000
b
$26,000 + $40,000 + $120,000 + $180,000 + $240,000 = $16,000 + $160,000 + $190,000 +
Capital Stock
Moderate
pp. 14-21-20
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
100. Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities of $230,000. If Sawaddee’s
total assets increased by $80,000 and its total liabilities increased by $57,000 during the year, what is the amount of
Sawaddee’s owners’ equity at the end of the year?
a.
$197,000
b.
$543,000
c.
$243,000
d.
$220,000
c
($450,000 + $80,000) = ($230,000 + $57,000) + SE
Moderate
pp. 14-21-20
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
101. Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities of $230,000. If Sawaddee total
liabilities increased by $31,000 and its owners’ equity decreased by $53,000 during the year, what was the amount of its
total assets at the end of the year?
a.
$472,000
b.
$242,000
c.
$198,000
d.
$428,000
d
A = ($230,000 + $31,000) + ($220,000* – $53,000) = $428,000
*Owners’ equity = $450,000 – $230,000
Moderate
pp. 14-21-20
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
102. The natural progression in items from one statement to another and preparation of financial statements is best
represented by the following order:
a.
Balance sheet and statement of cash flows > statement of retained earnings > income statement
b.
Balance sheet and statement of cash flows > income statement > statement of retained earnings.
c.
Statement of retained earnings > income statement > balance sheet and statement of cash flows
d.
Income statement > statement of retained earnings > balance sheet and statement of cash flows
d
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Understanding
103. All of the following are different expressions for net income except:
a.
Capital
b.
Excess of revenues over expenses
c.
Profits
d.
Earnings
a
Easy
p. 17
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Understanding
104. Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities of $230,000. If Sawaddee’s
total assets doubled to $1,000,000 and its owners’ equity remained the same during the year, what was the amount of its
total liabilities at the end of the year?
a.
$220,000
b.
$680,000
c.
$780,000
d.
$900,000
c
$900,000 = L + $220,000
Moderate
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Analyzing
105. The statement of retained earnings accomplishes which of the following?
a.
It summarizes income earned and dividends paid over a single period of the business.
b.
It accumulates all revenues for the year.
c.
It summarizes the balance sheet accounts.
d.
It summarizes the capital stock accounts over the life of the business.
a
Easy
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Understanding
106. Which concept is the reason the dollar is used in the preparation of financial statements?
a.
Going concern
b.
Legal entity
c.
Consistency
d.
None of these choices.
d
Easy
pp. 22-24
FACC.PONO.13.01-06 – LO: 01-06
Bloom’s: Understanding
107. Which one of the following is an assumption made in the preparation of financial statements?
a.
Financial statements are prepared for a specific entity that is distinct from the entity owners.
b.
Financial statements are prepared assuming that inflation has a distinct effect on the monetary unit
c.
Preparation of financial statements for a specific time period assumes that the balance sheet covers a period of
time.
d.
Market values are always assumed to be irrelevant when preparing financial statements.
a
Hard
pp. 22-24
FACC.PONO.13.01-06 – LO: 01-06
Bloom’s: Understanding
108. Why is the time period assumption required?
a.
Inflation exists
b.
External users of financial statements want statements that accurately reflect net income or earnings for a
specific time period.
c.
The dollar is the monetary unit in the United States.
d.
The federal government requires it.
b
Easy
pp. 22-24
FACC.PONO.13.01-06 – LO: 01-06
Bloom’s: Understanding
109. Which one of the following statements is true concerning assets?
a.
They are recorded at market value and then adjusted for inflation.
b.
They are recorded at market value for financial reporting purposes as historical cost may be arbitrary.
c.
Assets are used using the time-period approach.
d.
Accountants use the term historical cost to refer to the original cost of an asset.
d
Moderate
pp. 22-24
FACC.PONO.13.01-06 – LO: 01-06
Bloom’s: Understanding
110. Domenico Enterprises purchased land for $2,000,000 in 1999. In 2016, an independent appraiser assessed the value
at $4,400,000. What amount should appear on the financial statements in 2016 with respect to the land?
a.
$2,400,000
b.
$2,000,000
c.
$4,400,000
d.
Whatever amount the company believes is the best indicator of the true value of the land.
b
Moderate
pp. 22-24
FACC.PONO.13.01-06 – LO: 01-06
Bloom’s: Analyzing
111. Which of the following is a five-member body that has the authority from Congress to set standards for conducting
audits?
a.
FASB
b.
SEC
c.
PCAOB
d.
AICPA
c
Moderate
pp. 26-30
FACC.PONO.13.01-07 – LO: 01-07
Bloom’s: Remembering
112. Which the following organizations is primarily responsible for establishing GAAP today?
a.
IRS
b.
Securities and Exchange Commission (SEC)
c.
SEC
d.
None of these choices.
d
Easy
pp. 25-26
FACC.PONO.13.01-07 – LO: 01-07
Bloom’s: Remembering
113. Which of the following organizations is responsible for setting auditing standards followed by public accounting
firms in conducting independent audits of financial statements?
a.
Financial Accounting Standards Board (FASB)
b.
Securities and Exchange Commission (SEC)
c.
Public Company Accounting Oversight Board (PCAOB)
d.
International Accounting Standards Board (IASB)
c
Easy
pp. 25-26
FACC.PONO.13.01-07 – LO: 01-07
Bloom’s: Remembering
114. Which organization, in addition to the Financial Accounting Standards Board (FASB), occasionally issues
authoritative rules for financial statements?
a.
The Accounting Profession
b.
International Accounting Standards Board (IASB)
c.
Securities and Exchange Commission (SEC)
d.
Internal Revenue Service (IRS)
c
Easy
pp. 25-26
FACC.PONO.13.01-07 – LO: 01-07
Bloom’s: Remembering
115. The Securities and Exchange Commission (SEC) is concerned with
a.
Companies that issue securities to the general public.
b.
All companies in the US regardless of size.
c.
Accounting reports issued by government entities.
d.
All domestic and international companies that issue accounting reports.
a
Moderate
pp. 25-26
FACC.PONO.13.01-07 – LO: 01-07
Bloom’s: Remembering
116. To which of the following entities must a company report if it sells its stock on the organized stock market?
a.
American Institute of Certified Public Accountants (AICPA)
b.
American Accounting Association (AAA)
c.
International Accounting Standards Board (IASB)
d.
Securities and Exchange Commission (SEC)
d
Easy
pp. 25-26
FACC.PONO.13.01-07 – LO: 01-07
Bloom’s: Remembering
117. The reliability of the information in a company’s financial statements is the responsibility of which of the following?
a.
The Securities and Exchange Commission (SEC)
b.
The Certified Public Accountant in charge of the audit of the company’s financial statements
c.
Clients
d.
None of these choices.
d
Moderate
pp. 25-26
FACC.PONO.13.01-07 – LO: 01-07
Bloom’s: Remembering
118. In order for accounting information to be useful in making informed decisions, it must be
a.
relevant
b.
reliable
c.
Neither relevant nor reliable
d.
Both relevant and reliable
d
Moderate
pp. 26-30
FACC.PONO.13.01-08 – LO: 01-08
Bloom’s: Understanding
119. The second step in the ethical decision-making model is to
a.
List alternatives and evaluate the impact of each on those affected
b.
Select the best alternative
c.
Recognize an ethical dilemma
d.
Analyze the key elements in the situation
d
Moderate
pp. 26-30
FACC.PONO.13.01-08 – LO: 01-08
Bloom’s: Understanding
120. All of the following are important provisions of the Sarbanes-Oxley Act except:
a.
The establishment of a new Public Company Accounting Oversight Board.
b.
The requirement to prepare both FASB and IASB financial statements.
c.
A requirement that the external auditors report directly to the company’s audit committee.
d.
A clause to prohibit public accounting firms that audit a company from providing any other services that could
impair their ability to act independently in the course of their audit.
b
Moderate
pp. 26-30
FACC.PONO.13.01-08 – LO: 01-08
Bloom’s: Understanding
121. When selecting between the best alternatives regarding an ethical dilemma in accounting all of the following should
be considered except:
a.
which alternative provides the most relevant information.
b.
which alternative provides the most accurate information.
c.
which alternative provides the most neutral information.
d.
which alternative provides the most profitable information.
d
Easy
pp. 26-30
FACC.PONO.13.01-08 – LO: 01-08
Bloom’s: Understanding
Multiple Response
122. Choose the user group that is most likely to have the need listed below. (Select all that apply.)
The ability of the company to pay its debts as they become due.
a.
Stockholder
b.
Company management
c.
Supplier
d.
Banker
e.
Internal Revenue Service
f.
Securities and Exchange Commission
g.
Labor union
c, d
Moderate
pp. 11-12
FACC.PONO.13.01-04 – LO: 01-04
Bloom’s: Remembering
128. The process of identifying, measuring, and communicating economic information to various users is called
____________________.
accounting
Easy
pp. 11-12
FACC.PONO.13.01-04 – LO: 01-04
Bloom’s: Remembering
129. The names of the four financial statements are ________________________________,
________________________________, ________________________________, and
________________________________
income statement, balance sheet, statement of retained earnings, statement of cash flows
Easy
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Remembering
130. Another name for net income of a business is _________________________.
profits or earnings
Easy
pp. 14-21
FACC.PONO.13.01-05 – LO: 01-05
Bloom’s: Remembering
131. The various methods, rules, practices, and other procedures that have evolved over time in response to the need to
regulate the preparation of financial statements are called __________________________________________________.
generally accepted accounting principles
Moderate
pp. 22-24
FACC.PONO.13.01-06 – LO: 01-06
Bloom’s: Remembering
132. The concept that assumes that assets are recorded at the amount to acquire them is called the
_________________________.
cost principle
Moderate
pp. 22-24
FACC.PONO.13.01-06 – LO: 01-06
Bloom’s: Remembering