Question 1

Corporate stockholders generally pay higher taxes but have no personal liability.

Accepted Answer

A) True 
 B)False

Question 2

A different set of financial statements usually is prepared for each user.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is true?

Accepted Answer

A) Publicly traded U.S.companies must provide an annual report to their shareholders when operating conditions change significantly. 
B) An unqualified independent auditor's report must be included in the annual report. 
C) Notes to the financial statements do not need to be included in the annual report because that information is only for internal users. 
D) None of these answer choices are correct. 
A) Publicly traded U.S.companies must provide an annual report to their shareholders when operating conditions change significantly. 
B) An unqualified independent auditor's report must be included in the annual report. 
C) Notes to the financial statements do not need to be included in the annual report because that information is only for internal users. 
D) None of these answer choices are correct.

Question 4

Which of the following external groups uses accounting information to determine whether the company can pay its obligations?

Accepted Answer

A) Investors in common stock 
B) Marketing managers 
C) Creditors 
D) Chief Financial Officer 
A) Investors in common stock 
B) Marketing managers 
C) Creditors 
D) Chief Financial Officer

Question 5

Which of the following statements concerning users of accounting information is incorrect?

Accepted Answer

A) Management is considered an internal user. 
B) Present creditors are considered external users. 
C) Regulatory authorities are considered internal users. 
D) Taxing authorities are considered external users. 
A) Management is considered an internal user. 
B) Present creditors are considered external users. 
C) Regulatory authorities are considered internal users. 
D) Taxing authorities are considered external users.

Question 6

Which one of the following questions is most likely asked by an internal human resources director for the company?

Accepted Answer

A) Which product line is most profitable? 
B) What price for our product will maximize the company income? 
C) What average pay raise is affordable for employees this year? 
D) Should any product lines be eliminated? 
A) Which product line is most profitable? 
B) What price for our product will maximize the company income? 
C) What average pay raise is affordable for employees this year? 
D) Should any product lines be eliminated?

Question 7

Why are financial statement users interested in the statement of cash flows?

Accepted Answer

A) It is the easiest financial statement to evaluate. 
B) It provides information about an important company resource. 
C) It is the first statement that is presented to users. 
D) It helps users decide whether assets such as office equipment should be replaced. 
A) It is the easiest financial statement to evaluate. 
B) It provides information about an important company resource. 
C) It is the first statement that is presented to users. 
D) It helps users decide whether assets such as office equipment should be replaced.

Question 8

The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n)

Accepted Answer

A) account payable. 
B) account receivable. 
C) revenue. 
D) expense. 
A) account payable. 
B) account receivable. 
C) revenue. 
D) expense.

Question 9

The information needed to determine whether a company is using accounting methods similar to those of its competitors would be found in the

Accepted Answer

A) auditor's report. 
B) balance sheet. 
C) management discussion and analysis section. 
D) notes to the financial statements. 
A) auditor's report. 
B) balance sheet. 
C) management discussion and analysis section. 
D) notes to the financial statements.

Question 10

Which of the following is not one of the three forms of business organization?

Accepted Answer

A) Corporations 
B) Partnerships 
C) Proprietorships 
D) Investors 
A) Corporations 
B) Partnerships 
C) Proprietorships 
D) Investors

Question 11

An income statement shows

Accepted Answer

A) revenues, liabilities, and stockholders' equity. 
B) expenses, dividends, and stockholders' equity. 
C) revenues, expenses, and net income. 
D) assets, liabilities, and stockholders' equity. 
A) revenues, liabilities, and stockholders' equity. 
B) expenses, dividends, and stockholders' equity. 
C) revenues, expenses, and net income. 
D) assets, liabilities, and stockholders' equity.

Question 12

Jimmy's Repair Shop started the year with total assets of $300,000 and total liabilities of $240,000. During the year the business recorded $630,000 in revenues, $330,000 in expenses, and dividends of $60,000. Stockholders' equity at the end of the year was

Accepted Answer

A) $360,000. 
B) $300,000. 
C) $240,000. 
D) $270,000. 
A) $360,000. 
B) $300,000. 
C) $240,000. 
D) $270,000.

Question 13

Which of the following statements is true?

Accepted Answer

A) Amounts received from issuing stock are revenues. 
B) Amounts paid out as dividends are not expenses. 
C) Amounts paid out as dividends are reported on the income statement. 
D) Amounts received from issued stock are reported on the income statement. 
A) Amounts received from issuing stock are revenues. 
B) Amounts paid out as dividends are not expenses. 
C) Amounts paid out as dividends are reported on the income statement. 
D) Amounts received from issued stock are reported on the income statement.

Question 14

Ashley's Accessory Shop started the year with total assets of $210,000 and total liabilities of $120,000. During the year the business recorded $330,000 in revenues, $165,000 in expenses, and dividends of $60,000. The net income reported by Ashley's Accessory Shop for the year was

Accepted Answer

A) $120,000. 
B) $150,000. 
C) $195,000. 
D) $165,000. 
A) $120,000. 
B) $150,000. 
C) $195,000. 
D) $165,000.

Question 15

Jack and Jill form a partnership. Jack runs the business in New York, while Jill vacations in Hawaii. During the time Jill is away from the business, Jack increases the debts of the business by $20,000. Which of the following statements is true regarding this debt?

Accepted Answer

A) Only Jack is personally liable for the debt, since he has been the managing partner during that time. 
B) Only Jill is personally liable for the debt of the business, since Jack has been working and she has not. 
C) Both Jack and Jill are personally liable for the business debt. 
D) Neither Jack nor Jill is personally liable for the business debt, since the partnership is a separate legal entity. 
A) Only Jack is personally liable for the debt, since he has been the managing partner during that time. 
B) Only Jill is personally liable for the debt of the business, since Jack has been working and she has not. 
C) Both Jack and Jill are personally liable for the business debt. 
D) Neither Jack nor Jill is personally liable for the business debt, since the partnership is a separate legal entity.

Question 16

The retained earnings statement would not show

Accepted Answer

A) the retained earnings beginning balance. 
B) revenues and expenses. 
C) dividends. 
D) the ending retained earning balance. 
A) the retained earnings beginning balance. 
B) revenues and expenses. 
C) dividends. 
D) the ending retained earning balance.

Question 17

External users of accounting information are managers who plan, organize, and run a business.

Accepted Answer

A) True 
 B)False

Question 18

Ending retained earnings for a period is equal to beginning

Accepted Answer

A) Retained earnings + Net income + Dividends 
B) Retained earnings - Net income - Dividends 
C) Retained earnings + Net income - Dividends 
D) Retained earnings - Net income + Dividends 
A) Retained earnings + Net income + Dividends 
B) Retained earnings - Net income - Dividends 
C) Retained earnings + Net income - Dividends 
D) Retained earnings - Net income + Dividends

Question 19

Marvin Services Corporation had the following accounts and balances: $$\begin{array} { l r l r } 
\text { Accounts payable } & \$ 30,000 & \text { Equipment } & \$ 35,000 \
\text { Accounts receivable } & 5,000 & \text { Land } & 35,000 \
\text { Buildings } & ? & \text { Unearned service revenue } & 10,000 \
\text { Cash } & 15,000 & \text { Total stockholders' equity } & ?
\end{array}$$ If the balance of the Buildings account was $75,000 and the equipment was sold for $35,000, what would be the total of stockholders' equity?

Accepted Answer

A) $65,000 
B) $90,000 
C) $115,000 
D) $125,000 
A) $65,000 
B) $90,000 
C) $115,000 
D) $125,000

Question 20

Which of the following is a primary user of accounting information with a direct financial interest in the business?

Accepted Answer

A) Taxing authority 
B) Creditor 
C) Regulatory agency 
D) Labor union 
A) Taxing authority 
B) Creditor 
C) Regulatory agency 
D) Labor union

Exam 1: Introduction to Financial Statements

Corporate stockholders generally pay higher taxes but have no personal liability.

A different set of financial statements usually is prepared for each user.

Which of the following statements is true?

Which of the following external groups uses accounting information to determine whether the company can pay its obligations?

Which of the following statements concerning users of accounting information is incorrect?

Which one of the following questions is most likely asked by an internal human resources director for the company?

Why are financial statement users interested in the statement of cash flows?

The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n)

The information needed to determine whether a company is using accounting methods similar to those of its competitors would be found in the

Which of the following is not one of the three forms of business organization?

An income statement shows

Jimmy's Repair Shop started the year with total assets of $300,000 and total liabilities of $240,000. During the year the business recorded $630,000 in revenues, $330,000 in expenses, and dividends of $60,000. Stockholders' equity at the end of the year was

Which of the following statements is true?

Ashley's Accessory Shop started the year with total assets of $210,000 and total liabilities of $120,000. During the year the business recorded $330,000 in revenues, $165,000 in expenses, and dividends of $60,000. The net income reported by Ashley's Accessory Shop for the year was

Jack and Jill form a partnership. Jack runs the business in New York, while Jill vacations in Hawaii. During the time Jill is away from the business, Jack increases the debts of the business by $20,000. Which of the following statements is true regarding this debt?

The retained earnings statement would not show

External users of accounting information are managers who plan, organize, and run a business.

Ending retained earnings for a period is equal to beginning

Which of the following is a primary user of accounting information with a direct financial interest in the business?

A Further Look at Financial Statements

The Accounting Information System

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

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