Chapter 2: Financial Statements and the Annual Report
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Jobston, Inc.
The balance sheet of Jobston Inc. includes the following items:
Cash
$ 22,400
Accounts receivable
11,700
Inventory
23,300
Prepaid insurance
1,040
Land
80,000
Accounts payable
47,500
Salaries payable
1,200
Capital stock
84,040
Retained earnings
5,700
85. Read the information about Jobston, Inc. What is Jobston’s current ratio?
a.
0.8 to 1
b.
1.6 to 1
c.
1.2 to 1
d.
2.5 to 1
ANSWER:
c
RATIONALE:
Current Ratio = Current Assets/Current Liabilities = ($22,400 + $11,700 + $23,300 +
$1,040)/($47,500 + $1,200) = $58,440/48,700 = 1.2 to 1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-04 – LO: 02-04
KEYWORDS:
Bloom’s: Analyzing
86. Read the information about Jobston, Inc. What is Jobston’s working capital?
a.
$58,440
b.
$89,740
c.
$84,040
d.
$9,740
ANSWER:
d
RATIONALE:
Current Ratio = Current Assets/Current Liabilities = ($22,400 + $11,700 + $23,300 +
$1,040)/($47,500 + $1,200) = $58,440/48,700 = 1.2 to 1 Working Capital = Current Assets –
Current Liabilities = $58,440 – $48,700 = $9,740
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-04 – LO: 02-04
KEYWORDS:
Bloom’s: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
87. Which of the following would appear on a multiple-step income statement but not on a single-step income statement?
a.
Net income
b.
Total expenses
c.
Total revenues
d.
Income before income taxes
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
KEYWORDS:
Bloom’s: Understanding
88. Which of the following would not appear on an income statement?
a.
Sales revenue
b.
Cost of goods sold
c.
Accounts receivable
d.
Insurance expense
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
KEYWORDS:
Bloom’s: Understanding
89. Which statement is true concerning an income statement?
a.
The income statement shows how much profit the company has earned since it began operations.
b.
Net income on the income statement should be equal to the amount of cash on the balance sheet.
c.
The income statement summarizes the results of operations for a point in time.
d.
None of these choices.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
KEYWORDS:
Bloom’s: Understanding
90. Which statement is true concerning gains and losses?
a.
Gains and losses are reported on the balance sheet in the Assets and Liabilities sections, respectively.
b.
Gains and losses are special types of revenues and liabilities that are reported on the income statement.
c.
The amounts of gains and losses are included in the calculation of the current ratio, in the numerator and
denominator, respectively.
d.
None of these choices.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
91. Which one of the following subtotals or totals would appear in a multiple-step, but not a single-step income
statement?
a.
Income tax expense
b.
Income from operations
c.
Cost of goods sold
d.
Net income
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
KEYWORDS:
Bloom’s: Understanding
92. What are the two subtotals that distinguish the multi-step income statement from the single-step income statement?
a.
Income before taxes and income taxes
b.
Total operating revenues and total operating expenses
c.
Income from operations and income before taxes
d.
Total revenues and total expenses
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
KEYWORDS:
Bloom’s: Understanding
93. A question asked by stockholders is, “How much profit did the company make?” What should the stockholder
examine to get the most information that will help evaluate the answer to this question?
a.
The balance sheet, because retained earnings represents current profits
b.
The statement of cash flows, as cash inflows and outflows represents current profits
c.
The income statement, since it shows the revenues and expenses for the period
d.
The economic resources of the company
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
FACC.PONO.13.02-06 – LO: 02-06
KEYWORDS:
Bloom’s: Understanding
94. Under current accounting principles, how is net income on the income statement measured?
a.
Net change in owners’ equity during the period
b.
Excess of revenues over expenses during the period
c.
Net change in the cash balance during the period
d.
Excess of revenues over expenses less any dividends paid during the period
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
95. Which of the following statements is true regarding the multiple-step income statement?
a.
The multiple-step income statement is used only by companies that sell products, not those that provide
services.
b.
The multiple-step income statement is helpful in determining a company’s working capital.
c.
The multiple-step income statement reports the same net income as the single-step income statement.
d.
The multiple-step income statement is required under generally accepted accounting principles.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
KEYWORDS:
Bloom’s: Understanding
96. How is income from operations determined?
a.
By subtracting the total operating expenses from gross profit.
b.
By subtracting the total operating expenses from sales
c.
By subtracting the cost of goods sold from sales.
d.
By subtracting selling expenses from operating revenues
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
KEYWORDS:
Bloom’s: Understanding
97. The following list contains several items that appear on an income statement.
1.
Other revenue and expenses
5.
Net Income
2.
Income before taxes
6.
Operating revenues
3.
Income taxes
7.
Income from operations
4.
Operating expenses
Select the choice that lists the items in the order they would appear on a multi-step income statement.
a.
6, 1, 7, 4, 2, 3, 5
b.
7, 6, 1, 4, 2, 3, 5
c.
6, 4, 7, 1, 2, 3, 5
d.
6, 7, 4, 1, 2, 3, 5
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
KEYWORDS:
Bloom’s: Analyzing
Chapter 2: Financial Statements and the Annual Report
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Cobb Company
Selected data from the accounting records of Cobb Company are listed below:
General & administrative expenses
$2,200
Operating revenues
$6,000
Selling expenses
1,800
Income taxes
600
Other revenues (expenses)
800
Dividends paid
1,200
98. Read the information about Cobb Company. What is Cobb’s income from operations?
a.
$ 1,600
b.
$ 2,000
c.
$ 2,200
d.
$ 2,800
ANSWER:
b
RATIONALE:
($6,000 Operating Revenues – $2,200 General & Administrative Expenses – $1,800 Selling
Expenses = $2,000)
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
KEYWORDS:
Bloom’s: Analyzing
99. Read the information about Cobb Company. What is Cobb’s net income?
a.
$ 1,600
b.
$ 2,000
c.
$ 2,200
d.
$ 2,800
ANSWER:
c
RATIONALE:
($6,000 Operating Revenues – $2,200 General & Administrative Expenses – $1,800 Selling
Expenses = $2,000 + $800 Other Revenues (Expenses) – $600 Income Taxes = $2,200)
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
KEYWORDS:
Bloom’s: Analyzing
100. Read the information about Cobb Company. By what amount will net income on a single-step income statement
differ from net income on a multi-step income statement if Cobb Company prepares both formats?
a.
$ 800
b.
$ 600
c.
$ 200
d.
$ -0-
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
KEYWORDS:
Bloom’s: Analyzing
Chapter 2: Financial Statements and the Annual Report
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Seikoson
The 2016 income statement of Seikoson shows operating revenues of $130,800, selling expenses of $37,100, general and
administrative expenses of $34,900, interest expense of $900, and income tax expense of $11,430. Seikoson’s
stockholders’ equity was $280,000 at the beginning of the year and $320,000 at the end of the year. The company has
20,000 shares of stock outstanding at December 31, 2016.
101. Read the information about Seikoson. What is Seikoson’s net income?
a.
$80,000
b.
$92,190
c.
$130,800
d.
$46,470
ANSWER:
d
RATIONALE:
Net Income = $130,800 – $37,100 – $34,900 – $900 – $11,430 = $46,470
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
KEYWORDS:
Bloom’s: Analyzing
102. Read the information about Seikoson. What is Seikoson’s profit margin (to the closest tenth of a percent)?
a.
2.8
b.
35.5
c.
61.2
d.
14.5
ANSWER:
b
RATIONALE:
Profit margin: Net Income/Revenues = $46,470*/$130,800 = 35.5%
*$130,800 – $37,100 – $34,900 – $900 – $11,430 = $46,470
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-06 – LO: 02-06
KEYWORDS:
Bloom’s: Analyzing
103. Forman, Inc. earned $600,000 profit during 2016. On which financial statement(s) will you find the dollar amount of
the profit earned by the company?
a.
Balance sheet and income statement
b.
Income statement only
c.
Statement of retained earnings only
d.
Income statement and statement of retained earnings
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
FACC.PONO.13.02-07 – LO: 02-07
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
104. Lottony, Inc. is concerned about its profitability for the current year, since its profit margin has dropped 10% since
last year. Which of the following is the least useful comparison in evaluating the drop in Lottony’ profit margin?
a.
Comparison with the industry average for the current year
b.
Comparison with its current ratio for the current year
c.
Comparison with the profit margins for its major competitors for the current year
d.
Comparison with its profit margins for the past five years
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-06 – LO: 02-06
KEYWORDS:
Bloom’s: Applying
105. Assume that you want to determine the profit margin for a company. Which one of the following financial statements
is the best source of this information?
a.
Statement of retained earnings
b.
Statement of cash flows
c.
Statement of stockholders’ equity
d.
Income statement
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-06 – LO: 02-06
KEYWORDS:
Bloom’s: Understanding
Hopper, Inc.
Use the information from Hopper Inc. to answer the following question(s).
2017
2016
Operating revenues
$1,900,000
$1,600,000
Operating expenses
1,400,000
1,100,000
Income taxes
200,000
200,000
106. Read the information about Hopper. Inc. Which statement best represents Hopper’s performance?
a.
Hopper’s profit margin ratio decreased.
b.
Hopper has become more profitable.
c.
Hopper’s increase in operating revenues increased the company’s net income.
d.
Hopper’s operating expenses as a percentage of operating revenues remained the same.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-06 – LO: 02-06
KEYWORDS:
Bloom’s: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
107. Read the information about Hopper, Inc. Which of the following statements is the best answer regarding the
company’s profit margin?
a.
The profit margin was 15.8% in 2017.
b.
The profit margin was 15.8% in 2016.
c.
The profit margin was 31.5% in 2017.
d.
The profit margin was 31.5% in 2016.
ANSWER:
a
RATIONALE:
($300,000 (or $1,900,000 Operating revenues – $1,400,000 Operating expenses – $200,000
Income taxes) / $1,900,000 = 15.8%)
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-06 – LO: 02-06
KEYWORDS:
Bloom’s: Analyzing
108. Read the information about Hopper, Inc. Which ratio are you able to calculate given only the information provided
by Hopper?
a.
Profit margin
b.
Current ratio
c.
Working capital
d.
Gross profit percentage
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-06 – LO: 02-06
KEYWORDS:
Bloom’s: Applying
109. Which one of the following equations represents retained earnings activity?
a.
Beginning balance + net income + dividends = profits for the year
b.
Beginning balance + cash inflows – cash outflows = ending balance
c.
Beginning balance + dividends – net income = ending balance
d.
Beginning balance + net income – dividends = ending balance
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-07 – LO: 02-07
KEYWORDS:
Bloom’s: Understanding
Chapter 2: Financial Statements and the Annual Report
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Moore Industries
Moore Industries began operations on January 2, 2016, with an investment of $50,000 by each of its two stockholders. Net
income for its first year of business was $240,000. Moore Industries paid a total of $100,000 in dividends to its
stockholders during the year.
110. Read the information about Moore Industries. What is the company’s retained earnings balance at December 31,
2016?
a.
$140,000
b.
$190,000
c.
$240,000
d.
$340,000
ANSWER:
a
RATIONALE:
($0 Beginning Balance + $240,000 Net Income – $100,000 Dividends = $140,000)
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-07 – LO: 02-07
KEYWORDS:
Bloom’s: Analyzing
111. Read the information about Moore Industries. If the company’s revenues were $500,000 for the year ended
December 31, 2016, how much were total expenses?
a.
$160,000
b.
$260,000
c.
$640,000
d.
$740,000
ANSWER:
b
RATIONALE:
($500,000 Revenues – $240,000 Net Income = $260,000)
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
KEYWORDS:
Bloom’s: Analyzing
112. Read the information about Moore Industries. The company’s dividends for the year
a.
Reduce the amount of capital stock reported by the company.
b.
Are part of Moore Industries’ operating costs.
c.
Are reported on the statement of retained earnings.
d.
Are an expense of Moore Industries.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-07 – LO: 02-07
KEYWORDS:
Bloom’s: Applying
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
113. A company is not required to prepare both a(n)
a.
Income statement and statement of stockholders’ equity.
b.
Income statement and statement of retained earnings.
c.
Statement of stockholders’ equity and statement of retained earnings.
d.
Statement of cash flows and statement of retained earnings.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-07 – LO: 02-07
KEYWORDS:
Bloom’s: Understanding
114. In preparing the financial statements for December 31, 2016, an accountant improperly classified the payment of
prepaid rent as rent expense. Which of the following amounts would not be affected by this improper classification?
a.
Retained earnings, January 1, 2016
b.
Retained earnings, December 31, 2016
c.
Net income
d.
Total assets
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-07 – LO: 02-07
KEYWORDS:
Bloom’s: Understanding
115. Carnival Bakery borrowed $500,000 from Front Street Bank. Carnival then hired a contractor to build a new Jonesie
distribution outlet. In which section of Carnival’s statement of cash flows would you find information that indicated that
Carnival acquired the new Jonesie distribution outlet?
a.
Operating Activities
b.
Investing Activities
c.
Financing Activities
d.
Profit Activities
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Applying
116. A bank loaned $62 million to Apex Corporation to finance the construction of a new distribution warehouse. In
which section of Apex’s statement of cash flows would you be able to determine whether the company repaid any portion
of the debt during the year?
a.
Operating Activities
b.
Investing Activities
c.
Financing Activities
d.
Profit Activities
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Applying
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
117. Which of the following categories on a statement of cash flows is used to report the cash flow effects of transactions
involving a company’s stock?
a.
Operating Activities
b.
Investing Activities
c.
Financing Activities
d.
Profit Activities
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Understanding
118. Which one of the following categories on a statement of cash flows is used to report the cash flow effects of buying
and selling property, plant, and equipment?
a.
Operating Activities
b.
Investing Activities
c.
Financing Activities
d.
Profit Activities
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Understanding
119. Which one of the following is considered a financing activity?
a.
The payment of interest on a note payable to the bank
b.
Selling products to customers
c.
Paying wages to employees
d.
The payment of a cash dividend
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Understanding
120. Which one of the following statements is true?
a.
The two primary sources of financing available to corporations are borrowed funds and funds invested by
owners.
b.
Financing activities involve the acquisition of property, plant and equipment.
c.
Borrowed funds are a more permanent source of financing than funds invested by owners.
d.
Investing activities involve the selling of products or services and the incurring of expenses related to selling
these products and services.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Understanding
Chapter 2: Financial Statements and the Annual Report
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Marvel Shoes
Marvel Shoes reported the following items on its statement of cash flows for the current year:
Net cash inflows from operating activities
$70,000
Net cash outflows from investing activities
(20,000)
Net cash outflows from financing activities
(40,000)
Cash balance at the beginning of the year
30,000
121. Read the information about Marvel Shoes. What was the amount of net increase or decrease in the cash balance for
Marvel Shoes for the current year?
a.
$ 10,000 increase
b.
$ 30,000 increase
c.
$ 40,000 increase
d.
$ 70,000 increase
ANSWER:
a
RATIONALE:
($70,000 Operating Activities – $20,000 Investing Activities – $40,000 Financing Activities
= $10,000)
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Analyzing
122. Read the information about Marvel Shoes. What was the cash balance for Marvel Shoes at the end of the current
year?
a.
$ 10,000
b.
$ 30,000
c.
$ 40,000
d.
$ 70,000
ANSWER:
c
RATIONALE:
($30,000 Beginning Balance + $10,000 Increase in Cash = $40,000)
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Analyzing
123. Which financial statement reports the sources and uses of an entity’s cash resources?
a.
Income statement
b.
Statement of retained earnings
c.
Balance sheet
d.
Statement of cash flows
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
124. During its fifth year of operations, Bright Creations Company reports a beginning cash balance of $132,000, cash
inflows from investing activities of $210,000, cash outflows for financing activities of $79,000, and cash outflows for
operating activities of $13,000. What was Bright Creations’ cash balance at the end of the fifth year?
a.
$ 250,000
b.
$ 434,000
c.
$ 276,000
d.
$ 132,000
ANSWER:
a
RATIONALE:
($132,000 Beginning Balance – $13,000 Cash Flow from Operating Activities + $210,000
Cash Flows from Investing Activities – $79,000 Cash Flows from Financing Activities =
$250,000)
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Analyzing
125. Which of the following best describes a company’s financing activities?
a.
Financing activities focus on the sale of products and services.
b.
Financing activities include selling products.
c.
Financing activities enable a company to acquire assets needed to run a business.
d.
Financing activities are represented by the revenues and expenses on the income statement.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Understanding
126. Which of the following best describes a company’s operating activities?
a.
Operating activities focus on the sale of products and services.
b.
Operating activities are necessary to provide the money to start a business.
c.
Operating activities are needed to provide the valuable assets required to run a business.
d.
Operating activities represent the right to receive a benefit in the future.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Understanding
127. Which one of the following is an investing activity of a business?
a.
Paying for purchases of inventory
b.
Issuing stock for cash
c.
Borrowing money from a bank
d.
Purchasing a manufacturing plant for cash
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
128. Which one of the following is a financing activity of a business?
a.
Paying for purchases of inventory
b.
Issuing stock for cash
c.
Paying salaries
d.
Purchasing a manufacturing plant
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Understanding
129. Which one of the following is an operating activity of a business?
a.
Paying for purchases of inventory
b.
Issuing stock for cash
c.
Borrowing money from a bank
d.
Purchasing a manufacturing plant
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Understanding
130. Which of the following represents the correct sequence of the three business activities on the Statements of Cash
Flows?
a.
Financing – Operating – Investing
b.
Investing – Operating – Financing
c.
Operating – Investing – Financing
d.
Financing – Investing – Operating
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Understanding
131. Business entities generally carry on:
a.
Operating, investing, and financing activities
b.
Operating activities, but only corporations engage in financing and investing activities
c.
Investing and operating activities, but only corporations engage in financing activities
d.
Either investing or financing activities, but not both
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
132. Although businesses engage in a wide variety of activities, all of these activities can be categorized into three types.
Which of the following choices best reflects these three types of business activities?
a.
Operating, financing, reporting
b.
Investing, reporting, financing
c.
Operating, financing, investing
d.
Investing, reporting, operating
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Understanding
133. As used in accounting, the “Notes to the Financial Statement” should be:
a.
Listed with the liabilities on the balance sheet
b.
Omitted at the option of the company
c.
Included as an integral part of the financial statements
d.
Reported as expenses on the Income Statement
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-09 – LO: 02-09
KEYWORDS:
Bloom’s: Understanding
134. Which of the following items will be found in a corporate annual report?
a.
Company budgets
b.
Notes to the financial statements
c.
Selected financial data from competitor companies
d.
Management’s statement that the auditors are responsible for the financial statements
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-09 – LO: 02-09
KEYWORDS:
Bloom’s: Understanding
135. Which one of the following sections is least likely to be found in a corporate annual report?
a.
Notes to the Financial Statements
b.
Forecasts of Cash Flows and Earnings
c.
Report of the Independent Accountants
d.
Management’s Discussion and Analysis
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-09 – LO: 02-09
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
136. Supplementary disclosures required by GAAP that help explain detail behind the accounting treatment of certain
items in the financial statements is most likely found in which of the following sections of a corporate annual report?
a.
Report of the Independent Accountants
b.
Notes to the Financial Statements
c.
Management’s Discussion and Analysis
d.
Balance Sheet
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-09 – LO: 02-09
KEYWORDS:
Bloom’s: Understanding
137. An investor found the following in an annual report: “The financial statements, in our opinion, present fairly the
financial position, operating results, and cash flows, in conformity with accounting principles generally accepted in the
United States.” In which section of the annual report did the investor find this?
a.
Balance Sheet
b.
Notes to the Financial Statements
c.
Management’s Discussion and Analysis
d.
Report of the Independent Accountants
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-09 – LO: 02-09
KEYWORDS:
Bloom’s: Understanding
138. Which of the following represents one of the purposes of the notes to financial statements?
a.
To provide a place for management to justify questionable items in the statements
b.
To provide comparative ratios for the company’s financial data
c.
To provide the CPA’s opinion of the fairness of the financial statements
d.
To satisfy the need for full disclosure of all the facts relevant to a company’s results and financial position
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-09 – LO: 02-09
KEYWORDS:
Bloom’s: Understanding
139. In preparing financial statements, accountants should consider all of the following except:
a.
The objectives of financial reporting.
b.
The characteristics that make accounting information useful.
c.
The most useful way to display the information found on the financial statements.
d.
The presentation of the value of a company.
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-01 – LO: 03-01
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
140. Which of the following is the best description of the purpose of financial reporting?
a.
To allow users to access to the daily detailed records of a business.
b.
To help the users reach their decisions in an informed manner.
c.
To provide users with an assessment of how long the company will continue as a going concern.
d.
To allow users access to a list of all the individuals who owe the company money.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-01 – LO: 03-01
KEYWORDS:
Bloom’s: Understanding
141. You are comparing three companies that use different depreciation methods. Which of the following would help you
the most in making a comparison of the companies?
a.
The average earnings per share for the quarter.
b.
Prospective cash receipts.
c.
Claims to resources.
d.
Disclosure of accounting policies.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-02 – LO: 02-02
KEYWORDS:
Bloom’s: Applying
142. Which of the following are generally supplementary information required by GAAP concerning the accounting
treatments used by a company?
a.
A Year-End Worksheet
b.
Management’s Discussion and Analysis
c.
The Report of Independent Accountants
d.
Notes to the Consolidated Financial Statements
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-09 – LO: 02-09
KEYWORDS:
Bloom’s: Understanding
Completion
143. ____________________ and ____________________ have claims to an entity’s economic resources.
ANSWER:
Creditors, Investors
investors, creditors
Lenders, Stockholders
stockholders, lenders
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-01 – LO: 03-01
KEYWORDS:
Bloom’s: Remembering
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
144. ____________________ is the magnitude of an omission or misstatement in accounting information that will affect
the judgment of someone relying on the information.
ANSWER:
Materiality
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-02 – LO: 02-02
KEYWORDS:
Bloom’s: Remembering
145. . ____________________ is the impact of information to change decision-making.
ANSWER:
Relevance
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-02 – LO: 02-02
KEYWORDS:
Bloom’s: Remembering
146. ____________________ is the practice of using the least optimistic estimate when two estimates of amounts are
about equally likely.
ANSWER:
Conservatism
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-02 – LO: 02-02
KEYWORDS:
Bloom’s: Remembering
147. ____________________ is the quality of accounting information that makes it comprehensible to those willing to
spend the necessary time.
ANSWER:
Understandability
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-02 – LO: 02-02
KEYWORDS:
Bloom’s: Remembering
148. ____________________ is the quality of accounting information that makes it dependable in representing the events
that it purports to represent.
ANSWER:
Reliability
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-02 – LO: 02-02
KEYWORDS:
Bloom’s: Remembering
149. ____________________ is the quality of accounting information that allows a user to analyze two or more
companies and look for similarities and differences.
ANSWER:
Comparability
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-02 – LO: 02-02
KEYWORDS:
Bloom’s: Remembering
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
150. . ____________________ is the quality of accounting reporting that allows a user to compare two or more
accounting periods for a single business.
ANSWER:
Consistency
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-02 – LO: 02-02
KEYWORDS:
Bloom’s: Remembering
151. ____________________ have claims to an entity’s economic resources.
ANSWER:
Creditors
Lenders
Investors
Stockholders
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-03 – LO: 02-03
KEYWORDS:
Bloom’s: Remembering
152. . _________________________ are cash and other assets that are reasonably expected to be converted to cash during
the normal operating cycle of the business.
ANSWER:
Current assets
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-03 – LO: 02-03
KEYWORDS:
Bloom’s: Remembering
153. Equipment is classified as a ____________________ asset on the balance sheet.
ANSWER:
noncurrent
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-03 – LO: 02-03
KEYWORDS:
Bloom’s: Remembering
154. ____________________ is the process of writing off the cost of tangible assets and ____________________ is the
process of writing off the cost of intangible assets.
ANSWER:
Depreciation, amortization
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-03 – LO: 02-03
KEYWORDS:
Bloom’s: Remembering
155. ______________________________ is a liquidity measure that is calculated by subtracting current assets from
current liabilities.
ANSWER:
Working capital
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-04 – LO: 02-04
KEYWORDS:
Bloom’s: Remembering
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
156. The ability of a company to pay its debt when due refers to ____________________.
ANSWER:
liquidity
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-04 – LO: 02-04
KEYWORDS:
Bloom’s: Remembering
157. In a ____________________-step income statement, all expenses and losses are added together, then deducted from
the sum of all revenues and gains.
ANSWER:
single
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-05 – LO: 02-05
KEYWORDS:
Bloom’s: Remembering
158. The statement of ____________________ explains changes in the components of owners’ equity during the period.
ANSWER:
stockholders’ equity
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.02-07 – LO: 02-07
KEYWORDS:
Bloom’s: Remembering
159. On the statement of cash flows, the ______________________________ section involves the acquisition and sale of
long-term assets.
ANSWER:
Investing Activities
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Remembering
160. On the statement of cash flows, the ______________________________ section involves the purchase and sale of
products and services.
ANSWER:
Operating Activities
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Remembering
161. On the statement of cash flows, the ______________________________ section involves the issuance and
repayment of long term liabilities and stock transactions.
ANSWER:
Financing Activities
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.02-08 – LO: 02-08
KEYWORDS:
Bloom’s: Remembering