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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
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
AT1-2
____ 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
AT1-3
____ 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
AT1-5
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
Achievement Test 1
AT1-7
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
AT1-8
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
AT1-9
PART V — MATCHING: BALANCE SHEET CLASSIFICATIONS (18 points)
PART VI — RATIOS (12 points)
