91 test bank for financial accounting making the connection 1st

91 Test Bank for Financial Accounting Making the
Connection 1st
Edition by Spiceland Multiple Choice Questions-Page 1
Which statement below best describes the accounting equation?
1.

A.The change in retained earnings equals net income less dividends.

2.

B. Equality of revenue and expense transactions over time.

3.

4.

C. Resources of the company equal creditors' and owners' claims to those
resources.
D. Financing activities equal investing and operating activities.

Transactions related to the primary business activities of the
company, such as selling goods and services to customers, are
referred to as:
1.

A.Investing activities.

2.

B. Management activities.

3.

C. Operating activities.

4.

D. Financing activities.

Use the following appropriate amounts to calculate net income:
Revenues, $12,000; Liabilities, $5,000; Expenses, $4,000; Assets,
$19,000; Dividends, $4,000.
1.

A.$6,000.

2.

B. $8,000.

3.

C. $4,000.

4.

D. $14,000.

Creditors' claims to a corporation's resources are referred to as:
1.

A.Dividends.


2.

B. Assets.

3.

C. Liabilities.

4.

D. Stockholders' equity.

An alternative form of the accounting equation is:
1.

A. Net Income = Revenues - Expenses.

2.

B. Stockholders' Equity = Assets + Liabilities.

3.

C. Assets = Liabilities - Stockholders' Equity.

4.

D. Assets - Liabilities = Stockholders' Equity.

The primary purpose(s) of financial accounting is (are) to:
1.

A.Measure and record business transactions.

2.

B. Prepare federal and state tax returns.

3.

C. Communicate financial results to investors and creditors.

4.

D. a and c.

Which of the following groups is not among the external users for
whom financial statements are prepared?
1.

A.Creditors.

2.

B. Regulators.

3.

C. Investors.

4.

D. Managers.

Transactions of a company involving external sources of funding
are referred to as:
1.

A.Investing activities.

2.

B. Financing activities.

3.

C. External activities.


4.

D. Operating activities.

Net income can best be described as:
1.

A. Net cash received by a company during the year.

2.

B. Revenues minus expenses.

3.

C. The amount of profits retained in a company for the year.

4.

D. Resources owned by a company.

Which definition below best describes financial accounting?
1.

A.Process of measuring income taxes owed to the government.

2.

B. System of maintaining communication with a company's customers and
suppliers.

3.

C. Procedures designed to enhance the company's image to potential
investors.

4.

D. Measuring business activities and communicating them to external parties.

Which of the following best describes a revenue?
1.

A.Resources owned.

2.

B. Cash received from a customer.

3.

C. Amounts earned from providing goods and services to a customer.

4.

D. Dividends paid to stockholders.

The accounting equation is defined as:
1.

A.Assets = Liabilities + Stockholders' Equity.

2.

B. Assets = Liabilities - Stockholders' Equity.

3.

C. Net Income = Revenues - Expenses.

4.

D. Liabilities + Revenues = Assets.

Limited liability means:


1.

A.Stockholders of a corporation are not obligated to pay the corporation's
debts out of their own pocket.

2.

B. Liabilities of a company cannot exceed its assets.

3.

C. Companies are not allowed to borrow unless they are profitable.

4.

D. Companies are less likely to be sued if they are formed as a corporation.

The accounts which represent the resources of the company are
called:
1.

A. Liabilities.

2.

B. Revenues.

3.

C. Expenses.

4.

D. Assets.

The owners' interest in a corporation is called:
1.

A. Dividends.

2.

B. Assets.

3.

C. Liabilities.

4.

D. Stockholders' equity.

Which business form has the advantage of limited liability?
1.

A.Corporation.

2.

B. Sole proprietorship.

3.

C. Partnership.

4.

D. All business forms share equal limited liability.

Financial accounting:
1.

A.Provides information primarily for external decision makers.

2.

B. Provides information primarily for a company's employees.


3.

C. Provides information primarily for the use of managers of the company.

4.

D. Is primarily used to compute a company's tax obligation.

Emmitt had the following final balances after the first year of
operations: assets, $55,000; stockholders' equity, $25,000;
dividends, $3,000; and net income, $10,000. What is the amount of
Emmitt's liabilities?
1.

A.$55,000.

2.

B. $30,000.

3.

C. $13,000.

4.

D. $7,000.

McGill purchases additional office equipment to better serves its
customers. This purchase is classified as what type of activity?
1.

A.Company activity.

2.

B. Financing activity.

3.

C. Investing activity.

4.

D. Operating activity

Transactions of a company that include the purchase and sale of
long-term productive assets are referred to as:
1.

A.Investing activities.

2.

B. Financing activities.

3.

C. Expenditure activities.

4.

D. Operating activities.

Liabilities are best defined as:
1.

A.Amounts the company expects to collect in the future from customers.

2.

B. Debts or obligations the company owes resulting from past transactions.


3.

C. The amounts that owners have invested in the business.

4.

D. Payments to stockholders.

The form of business organization that is legally separate from its
owners is a:
1.

A.Partnership.

2.

B. Sole proprietorship.

3.

C. Corporation.

4.

D. Separation entity.

The costs of providing goods and services to customers are
referred to as:
1.

A. Assets.

2.

B. Expenses.

3.

C. Liabilities.

4.

D. Revenues.

What is the primary purpose of financial accounting?
1.

A.Determine the amount of tax liability owed to the government.

2.

B. Communicate business transactions to internal management.

3.

C. Measure business transactions and communicate those measures to
external users to make decisions.

4.

D. Measure the profitability of the company in order to assist employees with
making decisions.

One disadvantage of the corporate form of business is:
1.

A.Limited liability.

2.

B. Access to more capital.

3.

C. Smaller in size.


4.

D. Double taxation.

Financial accounting does not deal with which of the following?
1.

A.Measuring a company's economic activity.

2.

B. Preparing financial reports.

3.

C. Making business decisions.

4.

D. Communicating financial results to investors.

If a company has stockholders' equity of $60,000 at the end of the
year, which of the following statements must be true?
1.

A.The company's assets exceed liabilities by $60,000.

2.

B. The company has issued $60,000 of common stock.

3.

C. Net income for the year equals $60,000.

4.

D. Total revenues earned during the year equal $60,000.

91 Free Test Bank for Financial Accounting Making the
Connection 1st Edition by Spiceland Multiple Choice
Questions-Page 2
The financial statement(s) that record activity over an interval of
time is (are) the:
1.

A.Income statement.

2.

B. Balance sheet.

3.

C. Balance sheet and income statement.

4.

D. Income statement and statement of cash flows.

Aikman Company has paid dividends of $2,410, $0, $1,570 and

$1,060 over the first four years of the company's existence. If
Retained Earnings after year four has an ending balance of $9,700,
what is the average annual amount of net income (loss) over the
past four years for Aikman?


1.

A.$3,685.

2.

B. $14,740.

3.

C. $840.

4.

D. $1,260.

The ending Retained Earnings balance of Boomer Inc. decreased
by $1.0 million from the beginning of the year. The company
declared a dividend of $5.4 million during the year. What was the
net income earned during the year?
1.

A.$7.5 million.

2.

B. $6.4 million.

3.

C. $4.4 million.

4.

D. $1.0 million.

Which of the following items would not appear in an income
statement?
1.

A.Salaries expense.

2.

B. Advertising expense.

3.

C. Service revenue.

4.

D. Cash.

The equation best describing the income statement is:
1.

A.Revenues - Expenses = Net Income.

2.

B. Assets = Revenues - Expenses.

3.

C. Assets = Liabilities + Stockholders' Equity.

4.

D. Revenues + Expenses = Net Income.

Which of the following is not a balance sheet item?
1.

A.Assets.


2.

B. Common stock.

3.

C. Retained earnings.

4.

D. Revenues.

Nina Corp. had the following net income (loss) the first three years
of operation: $7,100, ($1,600), and $3,600. If the Retained Earnings
balance at the end of year three is $1,100, what was the total
amount of dividends paid over these three years?
1.

A.$500.

2.

B. $0.

3.

C. $9,100.

4.

D. $8,000.

Which of the following is the correct order for preparing the financial
statements?
1.

A.Balance sheet, statement of stockholders' equity, and income statement.

2.

B. Balance sheet, income statement, and statement of stockholders' equity.

3.

C. Statement of stockholders' equity, income statement, and balance sheet.

4.

D. Income statement, statement of stockholders' equity, and balance sheet.

Which of the following accounts appears in the statement of
stockholders' equity?
1.

A.Supplies.

2.

B. Cash.

3.

C. Salaries Payable.

4.

D. Retained Earnings.

The equation best describing the balance sheet is:
1.

A.Assets = Liabilities + Stockholders' Equity.


2.

B. Revenues - Expenses = Net Income.

3.

C. Ending Retained Earnings + Dividends = Net Income.

4.

D. Revenues + Expenses = Net Income.

Which of the following is an operating activity?
1.

A.Issuing common stock.

2.

B. Paying dividends.

3.

C. Borrowing cash from a bank to acquire a factory.

4.

D. Paying electricity bills for the month.

On January 1, 2012, Gucci Brothers Inc. started the year with a
$492,000 balance in Retained Earnings and a $605,000 balance in
Common Stock. During 2012, the company earned net income of
$92,000, paid a dividend of $15,200, and issued more common
stock for $27,500. What is total stockholders' equity on December
31, 2012?
1.

A. $1,231,700.

2.

B. $1,097,000.

3.

C. $1,201,300.

4.

D. $1,588,300.

Expenses are shown in which of the following statements?
1.

A.Income statement.

2.

B. Statement of cash flows.

3.

C. Balance sheet.

4.

D. Statement of stockholders' equity.

The financial statement that represents activity over the entire life of
the company is the:
1.

A.Income statement.


2.

B. Statement of financial accounting.

3.

C. Balance sheet.

4.

D. Statement of cash flows.

Which financial statement is typically prepared first?
1.

A.Balance sheet.

2.

B. Income statement.

3.

C. Statement of stockholders' equity.

4.

D. Statement of cash flows.

DW has an ending Retained Earnings balance of $51,100. If during
the year DW paid dividends of $4,300 and had net income of
$22,500, then what was the beginning Retained Earnings balance?
1.

A.$24,300.

2.

B. $300.

3.

C. $32,900.

4.

D. $69,300.

The accounts that represent resources owed to creditors are
called:
1.

A.Assets.

2.

B. Liabilities.

3.

C. Dividends.

4.

D. Stockholders' equity.

The two categories of stockholders' equity usually found in the
balance sheet of a corporation are:

1.

A.Common stock and liabilities.

2.

B. Assets and liabilities.


3.

C. Common stock and retained earnings.

4.

D. Revenues and expenses.

The costs associated with producing revenues are referred to as:
1.

A.Dividends.

2.

B. Assets.

3.

C. Liabilities.

4.

D. Expenses.

The financial statement that represents the accounting equation is
the:
1.

A.Income statement.

2.

B. Statement of cash flows.

3.

C. Balance sheet.

4.

D. Statement of stockholders' equity.

In what order are the following financial statements prepared: (1)
balance sheet, (2) income statement, and (3) statement of
stockholders' equity?
1.

A.1, 2, 3.

2.

B. 3, 2, 1.

3.

C. 1, 3, 2.

4.

D. 2, 3, 1.

Sooner Company has had a net income of $8,000, $5,000,
$12,000, and $10,000 over the first four years of the company's
existence. If the average annual amount of dividends paid over the
last four years is $3,000, what is the ending retained earnings
balance?
1.

A.$47,000.


2.

B. $35,000.

3.

C. $23,000.

4.

D. $7,000.

Which of the following statements regarding financial reports is not
correct?
1.

2.

A.A balance sheet contains assets, liabilities, and stockholders' equity
information.
B. An income statement shows revenues and expenses.

3.

C. A statement of stockholders' equity reports revenues, net income, and
dividends information.

4.

D. A statement of cash flows shows cash inflows and outflows from operating,
investing, and financing activities.

Retained earnings at the end of the year is calculated using:
1.

A.Beginning retained earnings, net income, and dividends.

2.

B. Common stock and dividends.

3.

C. Stockholders' equity, net income, and dividends.

4.

D. Net income and dividends.

Accountants are responsible for measuring various operating,
investing and financing activities. Which of the following correctly
matches the activity with its type?
1.

A.Investing - paying utilities for the month.

2.

B. Investing - purchasing land.

3.

C. Operating - paying dividends to stockholders.

4.

D. Financing - selling equipment for cash.

The account type that represents payments to stockholders is

called:
1.

A.Liabilities.


2.

B. Assets.

3.

C. Stockholders' equity.

4.

D. Dividends.

How many of the following transactions are operating activities?
Borrowed $50,000 from the bank; Purchased $12,000 in supplies;
Provide services to customers for $27,000; Paid the utility bill of
$750; Purchased a delivery truck for $12,000; Received $25,000
from issuing common stock
1.

A.One.

2.

B. Two.

3.

C. Three.

4.

D. Four.

91 Free Test Bank for Financial Accounting Making the
Connection 1st Edition by Spiceland Multiple Choice
Questions-Page 3
Which of the following items would not appear in an income
statement?
1.

A.Delivery expense.

2.

B. Accounts payable.

3.

C. Service revenue.

4.

D. Utilities expense.

If accounting information is considered to have faithful
representation, then which of the following is true?
1.

A.The information represents to users what it claims to represent.

2.

B. The information follows conservatism principles and is also material.

3.

C. The information is considered pertinent to or affects decisions.


4.

D. The information will have predictive value, feedback value, and is timely.

Which of the following is not a balance sheet item?
1.

A.Assets.

2.

B. Retained Earnings.

3.

C. Expenses.

4.

D. Liabilities.

Which of the following statements is NOT correct about the financial
statements?
1.

A.An income statement reports revenues, expenses, and net income
information.

2.

B. The statement of stockholders' equity presents common stock, dividends,
and retained earnings information.

3.
4.

C. A balance sheet reports assets, liabilities, revenues, and expenses.
D. The statement of cash flows shows cash inflows and outflows from
operating, financing, and investing activities.

The International Accounting Standards Board:
1.

A.Is governed by the U.S. Securities and Exchange Commission.

2.

B. Can overrule the FASB when their policies disagree.

3.

4.

C. Promotes the use of high-quality, understandable global accounting
standards.
D. Is the primary standard-setting body in the United States.

Independent auditors express an opinion on the:
1.

A.Fairness of financial statements.

2.

B. Amount of income taxes a company owes to the government.

3.

C. Quality of the company's products.

4.

D. Quality of a company's workforce.

Constraints on qualitative characteristics of accounting information
include:
1.

A.Freedom from material error.

2.

B. Going concern.

3.

C. Neutrality.

4.

D. Cost effectiveness.

Which accounting amount best represents value created for
stockholders during the current period?
1.

A.Retained earnings.

2.

B. Total assets.

3.

C. Net income.

4.

D. Stockholders' equity.

Today, financial accounting and reporting standards in the United
States are established primarily by the:
1.

A.Securities and Exchange Commission.

2.

B. International Accounting Standards Board.

3.

C. Financial Accounting Standards Board.

4.

D. U.S. Congress.

Primary qualitative characteristics of accounting information are:
1.

A.Relevance and comparability.

2.

B. Comparability and consistency.

3.

C. Faithful representation and relevance.

4.

D. Faithful representation and consistency.


The assumption that the assets and liabilities of the business are
accounted for on the books of the company but not included in the
records of the owner is the:
1.

A.Monetary unit assumption.

2.

B. Going concern assumption.

3.

C. Economic entity assumption.

4.

D. Periodicity assumption.

Net income appears in which two financial statements?
1.

A.Balance sheet and income statement.

2.

B. Statement of stockholders' equity and balance sheet.

3.

C. Income statement and statement of stockholders' equity.

4.

D. Net income appears in only one financial statement.

Materiality is based upon which factor(s)?
1.

A.Timeliness of an item.

2.

B. Amount and nature of an item.

3.

C. Consistency of an item.

4.

D. Relevance of an item.

For accounting information to be relevant, it must have which of the
following characteristics?
1.

A.Predictive value or confirmatory value.

2.

B. Large in amount and timely.

3.

C. Comparability or consistency.

4.

D. Freedom from material error, neutrality, or completeness.

The body of rules and procedures that guide the measurement and
communication of financial accounting information is known as:


1.

A.Standards of Professional Compliance (SPC).

2.

B. Generally Accepted Accounting Principles (GAAP).

3.

C. Generally Accepted Auditing Standards (GAAS).

4.

D. Rules of Financial Reporting (RFR).

Which of the following is not a major section in the statement of
cash flows?
1.

A.Cash flows from operating activities.

2.

B. Cash flows from financing activities.

3.

C. Cash flows from customers.

4.

D. Cash flows from investing activities.

The independent, private-sector group that is primarily responsible
for setting financial reporting standards in the United States is the:
1.

A.FASB.

2.

B. IASB.

3.

C. SEC.

4.

D. IRS.

The qualitative characteristic that says accounting information can
influence users' decisions by allowing them to assess past
performance is:
1.

A.Timeliness.

2.

B. Neutrality.

3.

C. Confirmatory value.

4.

D. Predictive value.

Accounting information that does not provide measurement bias in
favor of a particular set of companies has the characteristic of:


1.

A.Relevance.

2.

B. Consistency.

3.

C. Materiality.

4.

D. Neutrality.

Financial reporting objectives do not include providing information:
1.

2.

3.
4.

A.Useful to investors and creditors in making decisions.
B. To determine market values, assess profit potential, and evaluate
management.
C. Helpful to investors in predicting cash flows.
D. That tells about a company's economic resources and claims to those
resources.

GAAP is an abbreviation for:
1.

A.Generally authorized accounting procedures.

2.

B. Generally applied accounting procedures.

3.

C. Generally accepted auditing practices.

4.

D. Generally accepted accounting principles.

The balance sheet depicts which of the following equations?

1.
2.

A.Net income = revenue - expenses.
B. Ending retained earnings = beginning retained earnings + net income dividends.

3.

C. Assets = liabilities + stockholders' equity.

4.

D. Net cash flows = total cash inflows - total cash outflows.

Of the following, the most important objective for financial reporting
is to provide information useful for:
1.

A.Predicting cash flows.


2.

B. Determining taxable income.

3.

C. Providing accountability.

4.

D. Increasing future profits.

Liabilities are shown in which of the following statements?
1.

A.Income statement.

2.

B. Statement of cash flows.

3.

C. Balance sheet.

4.

D. Statement of stockholders' equity.

The conceptual framework's qualitative characteristic of faithful
representation includes:
1.

A.Predictive value.

2.

B. Neutrality.

3.

C. Confirmatory value.

4.

D. Comparability.

Which of the following items is reported in the statement of
stockholders' equity?
1.

A.Total assets.

2.

B. Total expenses.

3.

C. Net income.

4.

D. Operating cash flows.

If a company has gone bankrupt, its financial statements likely
violate the:
1.

A.Periodicity assumption.

2.

B. Monetary unit assumption.

3.

C. Going concern assumption.


4.

D. Economic entity assumption.

Which financial statement reports a company's retained earnings?
1.

A.Income statement.

2.

B. Balance sheet.

3.

C. Statement of cash flows.

4.

D. All of the above.

The major underlying assumptions of accounting include all of the
following except:
1.

A.Economic entity.

2.

B. Monetary unit.

3.

C. Legal liability.

4.

D. Going concern.

The assumption that a business can continue to remain in operation
into the future is the:
1.

A.Monetary unit assumption.

2.

B. Periodicity assumption.

3.

C. Economic entity assumption.

4.

D. Going concern assumption.

Which statement below best describes the objectives of financial
accounting?
1.
2.

A.Provide information that helps predict cash flows.
B. Provide information about the economic resources, claims to resources
and changes in resources and claims.

3.

C. Provide information that is useful in making decisions.

4.

D. All of the above are correct.


Which of the following accounts appears in the statement of
stockholders' equity?
1.

A.Accounts Payable

2.

B. Accounts Receivable

3.

C. Common Stock

4.

D. Supplies.

Enhancing qualitative characteristics of accounting information
include:
1.

A.Relevance and comparability.

2.

B. Comparability and consistency.

3.

C. Faithful representation and relevance.

4.

D. Cost effectiveness and materiality.

Which accounting number has the single greatest impact on stock
prices?
1.

A.Total dividends.

2.

B. Total assets.

3.

C. Total revenues.

4.

D. Net income.

The conceptual framework's qualitative characteristic of relevance
includes:
1.

A.Predictive value.

2.

B. Verifiability.

3.

C. Completeness.

4.

D. Neutrality.


Generally Accepted Accounting Principles (GAAP) are best defined
as:
1.

A.Standards or methods for presenting financial accounting information.

2.

B. Government-mandated rules that companies must follow.

3.

C. Rules that best estimate profitability for a company.

4.

D. The group of individuals that create and enforce all accounting rules.

Which financial accounting number impacts stock prices more than
any other single piece of information?
1.

A.Retained earnings.

2.

B. Net income.

3.

C. Common stock.

4.

D. Total assets.