Finance Chapter 1 Achievement Test S And Name Accounting

Achievement Test 1: Chapters 1 and 2 Name __________________________

Accounting Instructor _______________________

Kimmel, Weygandt, and Kieso Section # _______ Date _________

Part

I

II

III

IV

V

VI

Total

Points

42

8

10

18

12

100

Score

PART I — MULTIPLE CHOICE (42 points)

Instructions: Designate the best answer for each of the following questions.

____ 1. Which of the following has the advantage of enabling a business to raise funds most

easily?

a. Entity

b. Sole proprietorship

c. Corporation

d. Partnership

____ 2. Which of the following items will be reported on the statement of retained earnings?

a. Cash received from customers

b. Amounts received from issuing stock

c. Amounts owed to creditors

d. Amounts earned by a company but not distributed as dividends

____ 3. Which one of the following is not the correct date format for the respective financial

statement?

a. A balance sheet as of May 31, 2014

b. A statement of retained earnings as of May 31, 2014

c. An income statement for the month ended May 31, 2014

d. A statement of cash flows for the month ended May 31, 2014

____ 4. Which of the following is not considered an external user of accounting information?

a. Finance directors

b. Regulatory agencies

c. Creditors

d. Stockholders

____ 5. Which one of the following statements is true concerning the interrelationships of

financial statements?

a. Net income on the income statement equals the cash balance at the end of the

period on the balance sheet.

b. The ending balance of retained earnings on the statement of retained earnings is

equal to net income on the income statement.

c. The amount of net income on the income statement is added to the beginning

retained earnings balance on the statement of retained earnings.

d. The amount of cash used during the period on the statement of cash flows is equal

to total expenses on the income statement.

Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition

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____ 6. Which of the following is meaningful comparison to assess a company’s profitability?

a. An intracompany comparison of net income for a two-year period

b. Industry-average comparison of total assets

c. Year-to-year comparisons of liabilities with a competitor in the same industry

d. Intercompany comparisons of earnings per share for a two-year period

____ 7. Which one of the following is true?

a. Intangible assets are current assets that do not have physical substance.

b. Obligations expected to be paid after one year are classified as expenses.

c. Current assets are assets that a company expect to convert to cash or use up

within the longer of one year or its operating cycle.

d. Property, plant, and equipment are assets with relatively long useful lives that are

held for resale purposes.

____ 8. Tatum Enterprises’ total assets decreased by $11,000 during the year. Its

stockholders’ equity increased by $12,000 during the same period. Net income totaled

$8,000 during the year. What occurred to the company’s total liabilities during the

year?

a. $23,000 decrease

b. $1,000 increase

c. $15,000 decrease

d. $31,000 decrease

____ 9. For what purpose is the current ratio used?

a. To assess profitability

b. To determine the composition of a company’s assets

c. To measure the short-term ability of a company to pay its obligations

d. To measure the profitability of operations

____ 10. To be relevant, what characteristic must accounting information exhibit?

a. It must be capable of making a difference in a decision.

b. It must be compared with other companies.

c. It must be verifiable.

d. It must be based on the U.S. monetary unit.

____ 11. What is the role of the FASB?

a. To regulate U.S. financial markets and accounting standard-setting bodies

b. To determine auditing standards in the U.S.

c. To establish accounting standards in the U.S.

d. To regulate foreign companies that do business in the U.S.

____ 12. Which statement describes the periodicity assumption?

a. The life of a business can be divided into artificial times periods for which useful

reports can be prepared.

b. The business will remain in operation for the foreseeable future.

c. Every economic unit can be separately identified and accounted for.

d. Financial reports are issued on a timely basis for decision-making.

Achievement Test 1

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____ 13. Which one of the following represents the correct order of the three business activities

for a new company?

a. Financing, investing, operating

b. Investing, financing, operating

c. Operating, investing, financing

d. Financing, operating, investing

____ 14. At the beginning of January, 2014, Wise Company had a balance in its Retained

Earnings account totaling $42,000. At the end of the year, the balance totaled

$47,000. If $11,000 of dividends were declared and paid during the year, how much

was net income during 2014?

a. $5,000

b. $16,000

c. $53,000

d. $6,000

PART II—MATCHING: FINANCIAL STATEMENT ANALYSIS (8 points)

Instructions: Match the terms given below with the definitions or descriptions that follow by

placing the appropriate letter in the space provided.

A. Liquidity F. Profitability

B. Earnings per share G. Dividends

C. Debt to assets ratio H. Working capital

D. Current ratio I. Solvency

E. Free cash flow J. Periodicity

____ 1. Measures the ability of an enterprise to survive over a long period of time

____ 2. Distribution of cash or other assets from a corporation to its stockholders

____ 3. Measures the percentage of total assets that creditors provide

____ 4. The excess of current assets over current liabilities

____ 5. Current assets divided by current liabilities

____ 6. Measures of the income or operating success of an enterprise for a given period of

time

____ 7. A measure of the net income earned on each share of common stock

____ 8. The ability of a borrower to pay obligations when they become due

Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition

AT1-4

PART III — SHORT PROBLEMS (10 points)

Instructions: Present the solutions, with appropriate supporting calculations, for each of the

following independent problems.

1. Given the following information, compute 2014 net income for SaraDyne Company.

Stockholders’ equity—January 1, 2014 $ 84,000

Stockholders’ equity—December 31, 2014 87,000

Stockholder investments during 2014 12,000

Dividends paid during 2014 36,000

Revenues during 2014 310,000

2. Given the following information, determine the three missing amounts labeled as A, B, and C.

Stockholders’ Equity

Beginning of the Year End of the Year Changes During the Year

Total Assets $ A Total Assets $110,000 Investments $ 16,000

Total Liabilities 36,000 Total Liabilities B Dividends 34,000

Total Stockholders’ Equity 55,000 Total Stockholders’ Equity 81,000 Revenues C

Expenses 168,000

Total Change $ 26,000

Achievement Test 1

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PART IV — TYPES OF ACCOUNTS (10 points)

Instructions: Place an ‘X’ in the appropriate column to designate whether each of the following

accounts is an asset, a liability, stockholders’ equity, revenue or expense account.

Account

Asset

Liability

Stockholders’

Equity

Revenue

Expense

1. Common Stock

2. Rent Expense

3. Equipment

4. Retained Earnings

5. Dividends

6. Accounts Receivable

7. Mortgage Payable

8. Accounts Payable

9. Sales Revenue

10. Cash

Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition

AT1-6

PART V — BALANCE SHEET CLASSIFICATIONS (18 points)

Instructions: Match the account titles given below with the appropriate balance sheet

classification. An individual classification may be used more than once, or not at all. An account

may also not appear in the balance sheet.

A. Current Assets E. Current Liabilities

B. Long-term Investments F. Long-term Liabilities

C. Property, Plant, and Equipment G. Stockholders’ Equity

D. Intangible Assets H. Not separately presented on the balance sheet

____ 1. Cost of Goods Sold ____ 10. Income Taxes Payable

____ 2. Accounts Payable ____ 11. Inventories

____ 3. Patents ____ 12. Accounts Receivable

____ 4. Common Stock ____ 13. Prepaid Rent

____ 5. Supplies ____ 14. Notes Payable (due in 2 years)

____ 6. Service Revenue ____ 15. Accumulated Depreciation—Buildings

____ 7. Advertising Expense ____ 16. Retained Earnings

____ 8. Salaries Payable ____ 17. Mortgage Payable

____ 9. Equipment ____ 18. Dividends

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PART VI — RATIOS (12 points)

Selected information from the financial statements of Joe’s Coffee Brewers for the year ended

December 31, 2014, appears below:

Current assets $ 180,000

Total assets 550,000

Current liabilities 75,000

Long-term liabilities 90,000

Sales revenue 870,000

Dividends 60,000

Net income 134,000

Instructions: Calculate the amounts indicated below relating to the year ended December 31,

2014. The number of shares outstanding at the end of the year was 40,000. Show computations.

1. The current ratio for 2014 is __________.

2. The debt to assets ratio for 2014 is __________.

3. The working capital for 2014 is __________.

4. The earnings per share for 2014 is __________.

Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition

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Solutions — Achievement Test 1: Chapters 1 and 2

PART I — MULTIPLE CHOICE (42 points)

PART II — MATCHING: FINANCIAL STATEMENT ANALYSIS (8 points)

PART III — SHORT PROBLEMS (10 points)

PART IV — TYPES OF ACCOUNTS (10 points)

Achievement Test 1

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PART V — MATCHING: BALANCE SHEET CLASSIFICATIONS (18 points)

PART VI — RATIOS (12 points)