99 free test bank for cornerstones of financial and managerial accounting 2nd

99 Free Test Bank for Cornerstones of Financial and
Managerial Accounting 2nd
Edition by Rich
Multiple Choice Questions
Which of the following is not a form of a business entity?
1.

Sole proprietorship

2.

Partnership

3.

Cooperative

4.

Corporation

Bennett Motors is facing the following business decisions. Which
decision will least likely require financial information?
1.

A local bank is reviewing the company’s loan application.

2.

The company is attempting to sell its stock to the public.

3.

The labor union representing the company's employees is negotiating a pay
raise as part of a new labor agreement.

4.

The company's management is deciding whether to detail its vehicles today
or tomorrow.

Which financial statement would you analyze to assess a firm’s
operating performance for the past year?
1.

Balance Sheet

2.

Statement of Retained Earnings

3.

Income Statement

4.

Statement of Public Accounting

Businesses engage in which of the following three main activity
categories?

1.

Financing, Investing, Operating

2.

Cash, Credit, Noncash

3.

Financing, Credit, Operating

4.

Financing, Management, Operating

Which of the following invests funds into a business and is
considered an owner?
1.

Stockholders

2.

Creditors

3.

Bankers

4.

Lenders

Another term for Short Term Investments is:
1.

Inventories

2.

Accounts Receivable

3.

Contributed Capital

4.

Marketable Securities

Which one of the following items is a classification on the
Classified Balance Sheet?
1.

Operating accounts

2.

Stockholders' Equity

3.

Revenues and Expenses

4.

Net Income and Dividends

Which financial statement would you refer to in order to determine
how much resources (assets) the company owned?
1.

Balance Sheet

2.

Statement of Retained Earnings


3.

Income Statement

4.

Statement of Cash Flows

Which one of the following is a correct fundamental accounting
equation?
1.

Assets + Liabilities = Stockholders' Equity

2.

Assets + Retained Earnings = Stockholders' Equity

3.

Assets + Stockholders' Equity = Liabilities

4.

Assets = Liabilities + Stockholders' Equity

Which of the following best describes the term "retained earnings"
of a company?
1.

The amount of total profits earned by a company since it began operations.

2.

The amount of claim that the owners have on the assets of the company.

3.

The future economic resources of a company.

4.

The accumulated net income of a company that has not been distributed to
owners in the form of dividends.

Which of the following are Noncurrent assets?
1.

Machinery and equipment

2.

Accounts receivable

3.

Inventories

4.

Unearned revenues

Which of the following best describes the term "expenses"?
1.

The cost of assets used in the investing activities of a business.

2.

The amount of interest or claim that the owners have in the business.

3.

The future economic resources of a business entity.

4.

The cost of assets used in the operations of a business.


How is the Balance Sheet linked to the other financial
statements?
1.

The amount of retained earnings is reported on the Balance Sheet as a
liability.

2.

Retained earnings is added to total assets and reported on the Balance
Sheet.

3.
4.

Retained earnings is reported on the Balance Sheet.
There is no link between the Balance Sheet and other statements, as each
contains different accounts and provides different information.

What is unearned revenue?
1.

Stockholders’ equity

2.

Liability

3.

Asset

4.

Revenue

What is the name of the branch of accounting concerned with
providing outside decision makers with information to assess the
amounts, timing and uncertainties of the company's future cash
flows?
1.

Financial Accounting

2.

Auditing

3.

Managerial Accounting

4.

Bookkeeping

What is the name for a person who lends funds to a business
entity and expects repayment with interest?
1.

Creditor

2.

Owner

3.

Proprietor


4.

Stockholder

Which one of the following items appears on a balance sheet?
1.

Service revenue

2.

Unearned revenue

3.

Dividends

4.

Cash flow from operations

In which form of organization are the owners' legal responsibility
for the debt of the business limited to the amount they invested in
the business?
1.

Cooperative

2.

Corporation

3.

Partnership

4.

Proprietorship

Which one of the following is not one of the three business
activities?
1.

Financing

2.

Operating

3.

Investing

4.

Measuring

Which one of the following financial statements show the end of
the year cash balance for a business entity?
1.

Income Statement and Statement of Retained Earnings

2.

Balance Sheet and Statement of Cash Flows

3.

Statement of Retained Earnings and Statement of Cash Flows

4.

Balance Sheet and Statement of Retained Earnings


Which one of the following is not an external user of financial
statements?
1.

Internal Revenue Service

2.

Creditors

3.

Stockholders

4.

The Company's President

Which one of the following groups is considered an internal user
of financial statements?

1.

A supplier considering selling to the company on credit.

2.

The labor union representing employees of a company that is involved in
labor negotiations

3.

The financial analysts for a brokerage firm who are preparing
recommendations for the firm's brokers on companies in a

4.

certain industry,

5.

Managers of the company that supervise production workers.

"Revenues" are best described as:
1.

decreases in assets resulting from the sale of goods or services.

2.

increases in assets resulting from the sale of products or services.

3.

assets used or consumed in the sale of products or services.

4.

an increase in the financing activities.

On January 1, 2012, a company reported assets of $1,000,000
and liabilities of $600,000. During 2012, assets decreased by
$100,000 and Stockholders' Equity decreased $200,000. What is
the amount of liabilities at December 31, 2012?
1.

$200,000

2.

$500,000


3.

$600,000

4.

$700,000

Which one of the following financial statements reports an entity's
financial position at a specific date?
1.

Balance Sheet

2.

Statement of Retained Earnings

3.

Income Statement

4.

Both the Income Statement and the Balance Sheet

You are a potential creditor and are concerned that a particular
company you are ready to give a loan to might have too much
debt. Which financial statement would provide you information
needed in order to evaluate your concern?
1.

Balance Sheet

2.

Income Statement

3.

Statement of Retained Earnings

4.

Statement of Public Accounting

Which of the following best describes the term "current assets"?
1.

The amount of total profits earned by a business since it began operations
plus all other resources.

2.

The amount of claim that the owners have in the business in the current
year.

3.

Assets expected to be converted into cash within one year or one operating
cycle, whichever is longer.

4.

The cumulative profits earned by a business less any dividends distributed
in the current period.

Which one of the following correctly represents one of the basic

financial statement models?


1.

Assets Liabilities = Net Income

2.

Assets + Liabilities = Total Assets

3.

Revenues + Expenses = Net Income

4.

Beginning Retained Earnings + Net Income Dividends = Ending Retained
Earnings

99 Free Test Bank for Cornerstones of Financial and
Managerial Accounting 2nd Edition by Rich Multiple
Choice Questions - Page 2
Barnes Restaurant reports the following amounts: Calculate
Current Assets. Cash $125,000Inventory $215,000; Land
275,000Unearned Revenue 117,000; Equipment
350,000Common Stock 300,000
1.

$457,000

2.

$615,000

3.

$125,000

4.

$340,000

Which of the following is the correct date format for the financial
statement heading?
1.

Balance Sheet for the Year Ended June 30, 2013

2.

Income Statement at December 31, 2013

3.

Income Statement for the Year Ended December 31, 2013

4.

Statement of Retained Earnings at December 31, 2013

Benchmark Surveyors. The following balances are provided:
Refer to Benchmark Surveyors. Calculate Current Assets: Cash
$234,000Accounts Payable $ 97,000; Inventories 121,000Notes
Payable (due 2018) 211,000; Land 453,000Accounts Receivable
46,000


1.

$498,000

2.

$401,000

3.

$854,000

4.

$709,000

Beaver Tree Service. Refer to Beaver Tree Service. The
company's expenses are: Beginning Retained Earnings
$550,000; Ending Retained Earnings 700,000; Dividends Paid
100,000; Revenue 525,000
1.

$100,000

2.

$150,000

3.

$450,000

4.

$275,000

Which statement summarizes the results of the company's
operations?
1.

Statement of Cash Flows

2.

Statement of Retained Earnings

3.

Balance Sheet

4.

Income Statement

Beard Marine. The company reported the following information for
the year ended December 31, 2013: Refer to Beard Marine. What
was the balance of Retained Earnings at January 1, 2013? Net
income $100,000; Dividends 6,000; Retained earnings at
December 31, 2013 $120,000
1.

$ 21,000

2.

$ 26,000

3.

$106,000

4.

$214,000


Beard Marine. The company reported the following information for
the year ended December 31, 2013: Refer to Beard Marine. What
was the economic effect of the dividend payment? Net income
$100,000; Dividends 6,000; Retained earnings at December 31,
2013 $120,000
1.

2.

The dividend reduced net income for 2013.
The dividend should be added to net income if the company's accounting
equation is in balance.

3.

The dividend reduced total retained earnings.

4.

The dividends must be paid whenever the company reports net income.

Suppose a company reports the following information at
December 31, 2013: What is the company's Gross Profit? Sales
$15,000,000; Cash $ 3,000,000; Unearned Revenue $ 400,000;
Dividends $ 1,000,000; Cost of Sales $ 8,500,000
1.

$ 6,100,000

2.

$ 5,500,000

3.

$ 6,500,000

4.

$12,000,000

"Economic resources" are known as
1.

Assets

2.

Liabilities and stockholders' equity

3.

Owners' equity and stockholders' equity

4.

Retained earnings and revenues

Which one of the following items is reported as a current
stockholders' equity on a classified balance sheet?
1.

Net Income

2.

Accounts Payable

3.

Land

4.

Common Stock

The resources used to earn revenues during a period are called:
1.

Net Income

2.

Expenses

3.

Revenues

4.

Dividends

Net Income appears on which financial statement(s)?
1.

Balance Sheet only

2.

Income Statement only

3.

Both the Balance Sheet and the Income Statement

4.

The Income Statement, Statement of Cash Flows using the indirect method
and the Statement of Retained Earnings

If a company has assets of $5,000,000, liabilities of $3,000,000,
and retained earnings of $1,200,000, how much is total
stockholders' equity?
1.

$ 800,000

2.

$2,000,000

3.

$3,800,000

4.

$1,800,000

A non-classified balance sheet typically does not have a
distinction between which of the following items?
1.

Assets and Liabilities

2.

Current and Noncurrent items

3.

Liabilities and Stockholders' Equity


4.

Resources invested by the owners and amounts borrowed from creditors

External users of financial information
1.

Need detailed records of the business to make informed decisions.

2.

Are primarily responsible for the preparation of financial statements.

3.

Rely on the financial statements to help make informed decisions.

4.

Rely on management to tell them whether the company is a good
investment

On January 1, 2013, a company's balance in retained earnings
was $10,000,000. At December 31, 2013, the balance in retained
earnings was $9,400,000. If the company earned net income of
$440,000 during the year, how much were dividends?
1.

$1,040,000

2.

$1,000,000

3.

$ 600,000

4.

$ 440,000

On January 1, 2013, a company's balance in retained earnings
was $275,000. During 2013, the company earned net income of
$23,500 and paid $11,200 in dividends. Calculate the retained
earnings balance at December 31, 2013.
1.

$263,800

2.

$298,500

3.

$262,700

4.

$287,300

B&B Painting reported the following information for the year
ended December 31, 2013. How much was paid out in dividends
in 2013? Revenues $2,500,000; Expenses 2,000,000; Retained
Earnings at December 31, 2012 100,000; Retained Earnings at
December 31, 2013 450,000


1.

$500,000

2.

$150,000

3.

$350,000

4.

$250,000

Which of the following would not be considered to be an
intangible asset?
1.

Franchises

2.

Copyrights

3.

Investments

4.

Trademarks

Which of the following accounts are normally reported as current
liabilities on a classified balance sheet?
1.

Accounts Payable and Prepaid Insurance

2.

Interest Payable and Interest Receivable

3.

Income Taxes Payable and Salaries Payable

4.

Capital Stock and Accounts Payable

Which set of items below are current assets?
1.

Accounts Receivable, Net Income, Inventory, and Dividends

2.

Cash, Accounts Receivable, Capital Stock, and Sales

3.

Net Income, Cash, Office Supplies, and Inventory

4.

Cash, Accounts Receivable, Inventory, and Office Supplies

What is the primary objective of financial reporting?
1.

To help investors make credit decisions.

2.

To help management assess cash flows.


3.

To protect users from fraudulent financial information.

4.

To provide useful information for decision making

Barr Attorneys reported the following information for the year
ended December 31, 2013. What was the retained earnings
balance at December 31, 2012? Revenue $14,000,000;
Expenses 11,500,000; Dividends 1,000,000; Retained Earnings
at December 31, 2013 1,750,000

1.

$ 250,000

2.

$2,500,000

3.

$1,500,000

4.

$ 350,000

Which one of the following is not a major category for long-term
assets?
1.

Intangibles

2.

Property, Plant, and Equipment

3.

Inventory

4.

Patents

Benchmark Surveyors. The following balances are provided:
Refer to Benchmark Surveyors. Calculate Current Liabilities.
Cash $234,000Accounts Payable $ 97,000; Inventories
121,000Notes Payable (due 2018) 211,000; Land
453,000Accounts ;Receivable 46,000
1.

$ 97,000

2.

$211,000

3.

$354,000

4.

$143,000


Bay Camera. The company reported the following items on its
financial statements for the year ended December 31, 2013:
Refer to Bay Camera. What is the company’s Net Income for the
current year? Sales $780,000Cost of Sales $700,000; Selling,

general & administrative expense 20,000Other Expense 15,000;
Dividends 5,000Income Tax Expense 12,500
1.

$22,500

2.

$32,500

3.

$42,500

4.

$80,000

Which of the following terms best describes a distribution of the
net income of a corporation to its owners?
1.

Retained Earnings

2.

Dividends

3.

Liquidation of assets

4.

Monetary Unit

If assets are expected to be realized in cash, sold, or consumed
within the normal operating cycle of a business or within one year
(if the operating cycle is shorter than one year), how are they
reported on a classified balance sheet?
1.

Property, Plant, and Equipment

2.

Current Assets

3.

Intangible Assets

4.

Current Liabilities

Bay Camera. The company reported the following items on its
financial statements for the year ended December 31, 2013:
Refer to Bay Camera. What amount will be reported as Retained
Earnings on the Balance Sheet at December 31, 2013, assuming

this is the first year of operations? Sales $780,000Cost of Sales
$700,000; Selling, general & administrative expense 20,000Other
Expense 15,000; Dividends 5,000Income Tax Expense 12,500
1.

$22,500

2.

$27,500

3.

$42,500

4.

Not enough information is provided.

A company had the following balance sheet amounts at the
beginning of the year: During the year, total assets increased by
$350,000, total liabilities increased by $100,000, and dividends
were paid in the amount of Total assets $650,000; Total
stockholder's equity 250,000; $300,000. No other transactions
occurred except revenues and expenses. How much is net
income for the year?
1.

$750,000

2.

$650,000

3.

$500,000

4.

$550,000

For the most recent year, a company's current ratio was
significantly lower than its industry average. What is the best
possible explanation for this situation?
1.

The company’s competitors were profitable.

2.

The company’s liquidity has improved.

3.

The company has less equity than the rest of the industry.

4.

The company’s liquidity is worse than the rest of the industry.

Beaver Tree Service. Refer to Beaver Tree Service. What is the
company’s net income? Beginning Retained Earnings $550,000;


Ending Retained Earnings 700,000; Dividends Paid 100,000;
Revenue 525,000
1.

$150,000

2.

$250,000

3.

$300,000

4.

$350,000

Calculate total sales for a company that reported a net loss of
$1,500,000 and total expenses of $2,900,000.
1.

$4,400,000

2.

$1,400,000

3.

$2,400,000

4.

$1,600,000

Bargain Spot Fabrics. This company’s end-of-year balance sheet
consisted of the following amounts: Refer to Bargain Spot
Fabrics. What is the retained earnings balance at the end of the
current year? Cash $ 75,000Accounts Receivable $250,000;
Property, plant & equipment 350,000Long-term debt 200,000;
Capital stock 500,000Accounts payable 100,000; Retained
earnings ?Inventory 175,000
1.

$50,000

2.

$550,000

3.

$800,000

4.

$850,000

If a company has $10,500,000 of revenues, declares and pays
$550,000 in dividends, and has net income of $1,600,000, how
much were expenses for the year?
1.

$9,950,000


2.

$1,050,000

3.

$2,150,000

4.

$8,900,000

Bargain Spot Fabrics This company’s end-of-year balance sheet
consisted of the following amounts: Refer to Bargain Spot
Fabrics. What amount should the company report on its Balance
Sheet for Total Assets? Cash $ 75,000Accounts Receivable

$250,000; Property, plant & equipment 350,000Long-term debt
200,000; Capital stock 500,000Accounts payable 100,000;
Retained earnings ?Inventory 175,000
1.

$550,000

2.

$775,000

3.

$850,000

4.

$950,000

99 Free Test Bank for Cornerstones of Financial and
Managerial Accounting 2nd Edition by Rich Multiple
Choice Questions - Page 3
If a company has current assets of $2,100,000 and current
liabilities of $500,000, calculate its working capital.
1.

$2,100,000

2.

$2,600,000

3.

$1,600,000

4.

$ 500,000

Which one of the following equations represents the Statement of
Retained Earnings activity?
1.

Beginning retained earnings + net income + dividends = ending retained
earnings


2.

Beginning retained earnings + cash inflows cash outflows = ending
retained earnings

3.

Beginning retained earnings + dividends net income = ending retained
earnings

4.

Beginning retained earnings + net income dividends = ending retained
earnings

A company reported the following income statement amounts:
Which of the following best describes the company’s
performance? 2013 2012 Sales revenues $950,000 $800,000;
Operating expenses $700,000 $550,000; Income taxes $100,000
100,000
1.

The company’s operating profit as a percentage of operating revenues
decreased.

2.

The company has become more profitable.

3.

The increase in operating revenues increased the company's net income.

4.

The operating expenses as a percentage of operating revenues remained
the same.

The Earnings Per Share measure appears on which of the
following financial statements?
1.

Statement of Cash Flows

2.

Retained Earnings Statement

3.

Income Statement

4.

Balance Sheet

Been There Used Furniture. Been There Used Furniture began
operation on January 1, 2013, with an initial investment of
$100,000 from each of its five stockholders. During the year, the
company had net income of $200,000 and paid dividends of
$50,000. Refer to Been There Used Furniture. Calculate the
retained earnings balance at December 31, 2013.
1.

$150,000


2.

$200,000

3.

$500,000

4.

$650,000

Bellweather Times. The company reports the following balances:
Refer to Bellweather Times. By what amount will net income on a
single-step income statement differ from net income on a
multiple- step income statement if the company prepares both
formats? Other Revenue $180,000General and Administrative
Expense $320,000; Dividends paid $220,000Operating Revenues
$700,000; Selling Expenses $280,000Income Tax Expense
$60,000
1.

$0

2.

$2,000

3.

$6,000

4.

$8,000

A company has current assets of $100,000, total assets of
$250,000, current liabilities of $20,000, and long-term liabilities of
$50,000. How much of its existing cash can the company use to
acquire equipment without allowing its current ratio to decline
below 2.0 to 1?
1.

$ 40,000

2.

$150,000

3.

$180,000

4.

$ 60,000

Been There Used Furniture. Been There Used Furniture began
operation on January 1, 2013, with an initial investment of
$100,000 from each of its five stockholders. During the year, the
company had net income of $200,000 and paid dividends of
$50,000. Refer to Been There Used Furniture. If the company’s


revenues were $500,000 for the year ended December 31, 2013,

how much were total expenses?
1.

$300,000

2.

$250,000

3.

$350,000

4.

$800,000

Which of the following items would not be reported on a multiplestep income statement after income from operations?
1.

Income taxes

2.

Interest income

3.

Selling expenses

4.

Interest expense

Working capital is calculated by which of the following?
1.

Current assets divided by current liabilities

2.

Total assets minus total liabilities

3.

Current assets minus current liabilities

4.

Current assets plus current liabilities

Which of the following items will be found in a corporate annual
report?
1.

Industry standards

2.

Notes to the financial statements

3.

Selected financial data from non-competitor companies

4.

Management’s statement that the auditors are responsible for the financial
statements.


Bass Tours. The following balances were taken from the
company’s records: Refer to Bass Tours. If the average current
ratio for similar companies is 2.0 to 1, what does this tell you
about this company’s liquidity? Inventory $380,000Accounts
Receivable $190,000; Land 290,000Accounts Payable 180,000;
Cash 129,000Unearned Revenue 110,000; Prepaid Rent
33,000Common Stock 312,000; Retained Earnings 220,000Longterm Notes Payable 200,000
1.

The company is more liquid than its competitors.

2.

The company has more long-term assets than its competitors.

3.

The company is bankrupt.

4.

The company is more profitable than its competitors.

Been There Used Furniture. Been There Used Furniture began
operation on January 1, 2013, with an initial investment of
$100,000 from each of its five stockholders. During the year, the
company had net income of $200,000 and paid dividends of
$50,000. Refer to Been There Used Furniture. The dividends for
the year
1.

Increase the amount of capital stock reported by the company

2.

Are part of the company's operating expense

3.

Are reported on the Statement of Retained Earnings

4.

Are reported on the Income Statement.

Bellweather Times. The company reports the following balances:
Refer to Bellweather Times. What is the company's income from
operations? Other Revenue $180,000General and Administrative
Expense $320,000; Dividends paid $220,000Operating Revenues

$700,000; Selling Expenses $280,000Income Tax Expense
$60,000
1.

$280,000

2.

$220,000


3.

$100,000

4.

$40,000

Which of the following best describes a company's operating
activities?
1.

Operating activities are cash flows directly related to earning income.

2.

Operating activities are necessary to provide the money to start a business.

3.

Operating activities are needed to provide the valuable assets required to
run a business.

4.

Operating activities represent the right to receive a benefit in the future.

Which financial statement reports information helpful in assessing
working capital?
1.

Balance Sheet

2.

Capital Statement

3.

Statement of Retained Earnings

4.

Statement of Cash Flows

Which one of the following items is least likely to be found in a
corporate annual report?
1.

Notes to the Financial Statements

2.

Internal Budget Reports

3.

Report of the Independent Accountants

4.

Management's Discussion and Analysis

Which of the following would appear on an income statement?
1.

Unearned Revenue

2.

Cost of Sales

3.

Retained Earnings


4.

Dividends

The Income Statement shows:
1.

How much profit the company has earned since it began operations

2.

Net Income equal to the amount of cash on the Balance Sheet

3.

A summary of the results of operations for a period of time

4.

The liquidity of the company on an annual basis

On a multiple-step income statement, operating income results
from subtracting total operating expenses from which of the
following amounts?
1.

Gross margin

2.

Cost of goods sold

3.

Income before taxes

4.

Net sales

In which section of the annual report would you find: "The
financial statements, in our opinion, present fairly the financial
position, operating results, and cash flows, in conformity with
generally accepted accounting principles"?
1.

Management report

2.

Notes to the Financial Statements

3.

Management's Discussion and Analysis

4.

Report of the Independent Accountants

The list below contains several items that appear on a multiplestep income statement. Select the choice that lists the items in
the order they would appear on a multiple-step income statement.

1. Other income and expense; 2. Income before income taxes; 3.
Net Income; 4. Operating expenses; 5. Gross margin; 6. Net
sales; 7. Income from operations


1.

6, 5, 4, 7, 1, 2, 3

2.

7, 6, 1, 4, 2, 3, 5

3.

6, 5, 4, 1, 7, 2, 3

4.

6, 7, 4, 1, 2, 3, 5

For which of the following is the working capital and current ratio
is most useful?
1.

In evaluating a company's liquidity

2.

In evaluating a company's solvency

3.

In evaluating a company's profitability

4.

In evaluating a company's revenues

A question frequently asked by investors is, "How much debt
does this company have?" Which financial statement answers this
question?
1.

Single step income statement

2.

Cash flow statement

3.

Multiple-step income statement

4.

Classified balance sheet

As used in accounting, the "Notes to the Financial Statements"
should be:

1.

Shown at the bottom of the Income Statement.

2.

Excluded, as they are not an integral part of the financial statements.

3.

Included as an integral part of the financial statements.

4.

Considered an optional part of the financial statements.

Bass Tours. The following balances were taken from the
company’s records: Refer to Bass Tours. Calculate the current
ratio. Inventory $380,000Accounts Receivable $190,000; Land