133 test bank for accounting tools for business decision making 5th

133 Test Bank for Accounting Tools for Business
Decision Making 5th
Edition by Kimmel
Multiple Choice Questions
An advantage of the corporate form of business is that
1.

a.it has limited life.

2.

b.its owner’s personal resources are at stake.

3.

c.its ownership is easily transferable via the sale of shares of stock.

4.

d.it is simple to establish.

Which type of corporate information is readily available to
investors?
1.
2.

a.Financial comparison of operating alternatives
b.Marketing strategies for a product that will be introduced in eighteen
months

3.

c.Forecasts of cash needs for the upcoming year

4.

d.Amount of net income retained in the business

A business organized as a separate legal entity is a
1.

a.corporation.

2.

b.proprietor.

3.

c.government unit.

4.

d.partnership.

A small neighborhood barber shop that is operated by its owner
would likely be organized as a
1.

a.joint venture.

2.

b.partnership.


3.

c.corporation.

4.

d.proprietorship.

Which of the following groups uses accounting information to
determine whether the company can pay its obligations?
1.

a.Investors in common stock

2.

b.Marketing managers

3.

c.Creditors

4.

d.Chief Financial Officer

Which of the following groups uses accounting information to
determine whether a marketing proposal will be cost effective?
1.

a.Investors in common stock

2.

b.Marketing managers

3.

c.Creditors

4.

d.Chief Financial Officer

All of the following are advantages for choosing a proprietorship
for a business except
1.

a.a proprietorship is a simple form of business to set up.

2.

b.a proprietorship gives the owner control of the business.

3.

c.proprietorship receive more favorable tax treatment.

4.

d.transfer of ownership is easily achieved through stock sales.

A local retail shop has been operating as a sole proprietorship.
The business is growing and now the owner wants to incorporate.
Which of the following is not a reason for this owner to
incorporate?
1.

a.Ability to raise capital for expansion

2.

b.Desire to limit the owner’s personal liability


3.

c.The prestige of operating as a corporation

4.

d.The ease in transferring shares of the corporation’s stock

A corporation has which of the following set of characteristics?
1.

a.Shared control, tax advantages, increased skills and resources

2.

b.Simple to set up and maintains control with founder

3.

c.Easier to transfer ownership and raise funds, no personal liability

4.

d.Harder to raise funds and gives owner control

Which of the following would not be considered an internal user of
accounting data for a company?
1.

a.The president of a company

2.

b.The controller of a company

3.

c.Creditor of a company

4.

d.Salesperson of a company

Which one of the following questions is most likely asked by an
internal human resources director for the company?
1.

a.Which product line is most profitable?

2.

b.What price for our product will maximize the company income?

3.

c.What average pay raise is affordable for employees this year?

4.

d.Should any product lines be eliminated?

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?
1.

a.Only Jack is personally liable for the debt, since he has been the
managing partner during that time.

2.

3.
4.

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.

Which of the following is not an advantage of the corporate form
of business organization?
1.

a.No personal liability

2.

b.Easy to transfer ownership

3.

c.Favorable tax treatment

4.

d.Easy to raise funds

Which of the following groups uses accounting information to
determine whether the company’s net income will result in a stock
price increase?
1.

a.Investors in common stock

2.

b.Marketing managers

3.

c.Creditors

4.

d.Chief Financial Officer

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

a.Corporations

2.

b.Partnerships

3.

c.Proprietorships

4.

d.Investors

Which of the following is not a step for solving an ethical
dilemma?


1.

a.Identifying the alternatives and weighing the impact of each alternative on
various stakeholders.

2.

b.Certifying the ethical accuracy of the financial information.

3.

c.Identifying and analyzing the principal elements in the situation.

4.

d.Recognizing the ethical situation and issues involved.

Which of the following would not be considered an external user

of accounting data for the Julian Company?
1.

a.Internal Revenue Service agent

2.

b.Management

3.

c.Creditors

4.

d.Customers

External users of accounting information, like the Internal
Revenue Service, are most commonly known as
1.

a.taxing authorities.

2.

b.labor unions.

3.

c.customers.

4.

d.regulatory agencies.

The partnership form of business organization
1.

a.is a separate legal entity.

2.

b.is a common form of organization for service-type businesses.

3.

c.enjoys an unlimited life.

4.

d.has limited liability.

The group of users of accounting information charged with
achieving the goals of the business is its
1.

a.auditors.


2.

b.investors.

3.

c.managers.

4.

d.creditors.

Which of the following would not be considered an internal user of
accounting data for the Xanadu Company?
1.

a.President of the company

2.

b.Production manager

3.

c.Merchandise inventory clerk

4.

d.President of the employees' labor union

Which of the following statements is not true regarding the

Sarbanes-Oxley Act (SOX)?
1.

a.The Act calls for increased oversight responsibilities for boards of
directors.

2.

b.The Act has resulted in increased penalties for financial fraud by top
management.

3.

c.The Act calls for decreased independence of outside auditors reviewing
corporate financial statements.

4.

d.The Act is meant to decrease the likelihood of unethical corporate
behavior.

Which of the following groups uses accounting information
primarily to insure the entity is operating within prescribed rules?
1.

a.Taxing authorities

2.

b.Regulatory agencies

3.

c.Labor Unions

4.

d.Management

Which of the following is a user of accounting information with an
indirect financial interest in a business?


1.

a.A financial adviser

2.

b.Management

3.

c.Investor

4.

d.Creditor

Which of the following is the best definition of an internal user of

accounting information?
1.

a.Investors who use accounting information to decide whether to buy or sell
stock.

2.

b.Creditors like banks that use accounting information to evaluate the risk
of lending money.

3.

c.Labor unions who use accounting information to examine the ability of the
company to pay increased wages and benefits.

4.

d.Managers who use accounting information to plan, organize, and run a
business.

Which of the following are internal reports that accounting
provides to internal users?
1.

a.Forecasts of cash needs for next year.

2.

b.Financial comparisons of operating activity alternatives.

3.

c.Both forecasts of cash needs and financial comparisons are internal
reports.

4.

d.Neither forecasts of cash needs or financial comparisons is an internal
report.

Which of the following statements concerning users of accounting
information is incorrect?
1.

a.Management is considered an internal user.

2.

b.Present creditors are considered external users.

3.

c.Regulatory authorities are considered internal users.

4.

d.Taxing authorities are considered external users.

A business organized as a corporation
1.
2.

a.is not a separate legal entity in most states.
b.requires that stockholders be personally liable for the debts of the
business.

3.

c.is owned by its stockholders.

4.

d.has tax advantages over a proprietorship or partnership.

Which of the following is the most appropriate and modern
definition of accounting?
1.

2.

a.The information system that identifies, records, and communicates the
economic events of an organization to interested users.
b.A means of collecting information.

3.

c.The interconnected network of subsystems necessary to operate a
business.

4.

d.Electronic collection, organization, and communication of vast amounts of
information.

Which of the following is an advantage of corporations relative to
partnerships and sole proprietorships?
1.

a.Reduced legal liability for investors

2.

b.Harder to transfer ownership

3.

c.Lower taxes

4.

d.Most common form of organization

The proprietorship form of business organization
1.

a.must have at least two owners in most states.

2.

b.generally receives favorable tax treatment relative to a corporation.

3.

4.

c.combines the records of the business with the personal records of the
owner.
d.is classified as a separate legal entity.


Most business enterprises in the United States are
1.

a.proprietorships and partnerships.

2.

b.partnerships.

3.

c.corporations.

4.

d.government units.

Which of the following is a primary user of accounting information

with a direct financial interest in the business?
1.

a.Taxing authority

2.

b.Creditor

3.

c.Regulatory agency

4.

d.Labor union

133 Free Test Bank for Accounting Tools for Business
Decision Making 5th Edition by Kimmel Multiple
Choice Questions - Page 2
Which of the following activities involves collecting the necessary
funds to support the business?
1.

a.Operating

2.

b.Investing

3.

c.Financing

4.

d.Delivering

Issuing shares of stock in exchange for cash is an example of
a(n)
1.

a.delivering activity.

2.

b.investing activity.

3.

c.financing activity.


4.

d.operating activity.

The right to receive money in the future is called a(n)
1.

a.account payable.

2.

b.account receivable.

3.

c.liability.

4.

d.revenue.

The cost of assets consumed or services used is also known as
1.

a.a revenue.

2.

b.an expense.

3.

c.a liability.

4.

d.an asset.

The common characteristic possessed by all assets is
1.

a.long life.

2.

b.great monetary value.

3.

c.tangible nature.

4.

d.future economic benefit.

Buying assets needed to operate a business is an example of
a(n)
1.

a.delivering activity.

2.

b.financing activity.

3.

c.investing activity.

4.

d.operating activity.

Gibson Company recorded the following cash transactions for the
year: Paid $180,000 for salaries. Paid $80,000 to purchase office
equipment. Paid $20,000 for utilities. Paid $8,000 in dividends.


Collected $310,000 from customers. What was Gibson’s net cash
provided by operating activities?
1.

a.$110,000

2.

b.$30,000

3.

c.$130,000

4.

d.$102,000

Debts and obligations of a business are referred to as

1.

a.assets.

2.

b.equities.

3.

c.liabilities.

4.

d.expenses.

Expenses are incurred
1.

a.only on rare occasions.

2.

b.to produce assets.

3.

c.to produce liabilities.

4.

d.to generate revenues.

Which of the following financial statements is divided into major
categories of operating, investing, and financing activities?
1.

a.The income statement.

2.

b.The balance sheet.

3.

c.The retained earnings statement.

4.

d.The statement of cash flows.

Which of the following is an asset?
1.

a.Mortgage payable


2.

b.Investments

3.

c.Common stock

4.

d.Retained earnings

Which type of corporate information is not available to investors?
1.

a.Dividend history

2.

b.Forecast of cash needs for the upcoming year

3.

c.Cash provided by investing activities

4.

d.Beginning cash balance

The statement of cash flows would disclose the payment of a
dividend
1.

a.nowhere on the statement.

2.

b.in the operating activities section.

3.

c.in the investing activities section.

4.

d.in the financing activities section.

The best definition of assets is the
1.
2.

3.
4.

a.cash owned by the company.
b.collections of resources belonging to the company and the claims on
these resources.
c.owners’ investment in the business.
d.resources belonging to a company that have future benefit to the
company.

Debt securities sold to investors that must be repaid at a
particular date some years in the future are called

1.

a.accounts payable.

2.

b.notes receivable.


3.

c.taxes payable.

4.

d.bonds payable.

Which of the following is not a liability?
1.

a.Unearned Service Revenue

2.

b.Accounts Payable

3.

c.Accounts Receivable

4.

d.Interest Payable

Resources owned by a business are referred to as
1.

a.stockholders’ equity.

2.

b.liabilities.

3.

c.assets.

4.

d.revenues.

Jackson Company recorded the following cash transactions for
the year: Paid $135,000 for salaries. Paid $60,000 to purchase
office equipment. Paid $15,000 for utilities. Paid $6,000 in
dividends. Collected $245,000 from customers. What was
Jackson’s net cash provided by operating activities?
1.

a.$95,000

2.

b.$35,000

3.

c.$110,000

4.

d.$89,000

Which activities involve putting the resources of the business into
action to generate a profit?
1.

a.Delivering

2.

b.Financing


3.

c.Investing

4.

d.Operating

When expenses exceed revenues, which of the following is true?
1.

a.a net loss results

2.

b.a net income results

3.

c.assets equal liabilities

4.

d.assets are increased

External users want answers to all of the following questions
except
1.

a.Is the company earning satisfactory income?

2.

b.Will the company be able to pay its debts as they come due?

3.

c.Will the company be able to afford employee pay raises this year?

4.

d.How does the company compare in profitability with competitors?

Which of the following is not a principal type of business activity?
1.

a.Operating

2.

b.Investing

3.

c.Financing

4.

d.Delivering

Which activities involve acquiring the resources to run the
business?
1.

a.Delivering

2.

b.Financing

3.

c.Investing

4.

d.Operating


The liability created by a business when it purchases coffee
beans and coffee cups on credit from suppliers is termed a(n)
1.

a.account payable.

2.

b.account receivable.

3.

c.revenue.

4.

d.expense.

Borrowing money is an example of a(n)
1.

a.delivering activity.

2.

b.financing activity.

3.

c.investing activity.

4.

d.operating activity.

133 Free Test Bank for Accounting Tools for Business
Decision Making 5th Edition by Kimmel Multiple
Choice Questions - Page 3
Ashley’s Accessory Shop started the year with total assets of
$140,000 and total liabilities of $80,000. During the year the
business recorded $220,000 in revenues, $110,000 in expenses,
and dividends of $40,000. Stockholders’ equity at the end of the
year was
1.

a.$120,000.

2.

b.$110,000.

3.

c.$130,000.

4.

d.$70,000.

If total liabilities decreased by $75,000 and stockholders’ equity
increased by $25,000 during a period of time, then total assets
must change by what amount and direction during that same
period?


1.

a.$100,000 increase

2.

b.$50,000 decrease

3.

c.$50,000 increase

4.

d.$75,000 decrease

Lankston Company began the year by issuing $90,000 of
common stock for cash. The company recorded revenues of
$825,000, expenses of $720,000, and paid dividends of $45,000.
What was Lankston’s net income for the year?
1.

a.$60,000

2.

b.$150,000

3.

c.$105,000

4.

d.$195,000

Which of the following statements is true?
1.

a.Amounts received from issuing stock are revenues.

2.

b.Amounts paid out as dividends are not expenses.

3.

c.Amounts paid out as dividends are reported on the income statement.

4.

d.Amounts received from issued stock are reported on the income
statement.

Dividends paid
1.

a.increase assets.

2.

b.increase expenses.

3.

c.decrease revenues.

4.

d.decrease retained earnings.

Which of the following financial statements is concerned with the
company at a point in time?

1.

a.Balance sheet


2.

b.Income statement

3.

c.Retained earnings statement

4.

d.Statement of cash flows

If the retained earnings account increases from the beginning of
the year to the end of the year, then
1.

a.net income is less than dividends.

2.

b.a net loss is less than dividends.

3.

c.additional investments are less than net losses.

4.

d.net income is greater than dividends.

Which financial statement is prepared first?
1.

a.Balance sheet

2.

b.Income statement

3.

c.Retained earnings statement

4.

d.Statement of cash flows

Net income results when
1.

a.Assets > Liabilities.

2.

b.Revenues = Expenses.

3.

c.Revenues > Expenses.

4.

d.Revenues < Expenses.

Dividends are reported on the
1.

a.income statement.

2.

b.retained earnings statement.

3.

c.balance sheet.

4.

d.income statement and balance sheet.


The retained earnings statement shows all of the following
except
1.

a.the amounts of changes in retained earnings during the period.

2.

b.the causes of changes in retained earnings during the period.

3.

c.the time period following the one shown for the income statement.

4.

d.beginning retained earnings on the first line of the statement.

Net income will result during a time period when
1.

a.assets exceed liabilities.

2.

b.assets exceed revenues.

3.

c.expenses exceed revenues.

4.

d.revenues exceed expenses.

Ashley’s Accessory Shop started the year with total assets of
$140,000 and total liabilities of $80,000. During the year the
business recorded $220,000 in revenues, $110,000 in expenses,
and dividends of $40,000. The net income reported by Ashley’s
Accessory Shop for the year was
1.

a.$80,000.

2.

b.$100,000.

3.

c.$130,000.

4.

d.$110,000.

Ending retained earnings for a period is equal to beginning
1.

a.Retained earnings + Net income + Dividends

2.

b.Retained earnings – Net income – Dividends

3.

c.Retained earnings + Net income – Dividends

4.

d.Retained earnings – Net income + Dividends


If total liabilities increased by $75,000 and stockholders’ equity
increased by $25,000 during a period of time, then total assets
must change by what amount and direction during that same
period?
1.

a.$100,000 decrease

2.

b.$100,000 increase

3.

c.$125,000 increase

4.

d.$150,000 increase

The company’s policy toward dividends and growth could best be
determined by examining the
1.

a.balance sheet.

2.

b.income statement.

3.

c.retained earnings statement.

4.

d.statement of cash flows.

Gilkey Corporation began the year with retained earnings of
$465,000. During the year, the company issued $630,000 of
common stock, recorded expenses of $1,800,000, and paid
dividends of $120,000. If Gilkey’s ending retained earnings was
$495,000, what was the company’s revenue for the year?
1.

a.$1,830,000

2.

b.$1,950,000

3.

c.$2,460,000

4.

d.$2,580,000

Jimmy’s Repair Shop started the year with total assets of
$200,000 and total liabilities of $160,000. During the year the
business recorded $420,000 in revenues, $220,000 in expenses,
and dividends of $40,000. The net income reported by Jimmy’s
Repair Shop for the year was


1.

a.$160,000.

2.

b.$200,000.

3.

c.$120,000.

4.

d.$380,000.

In a study session, a classmate makes this statement “Dividends
are listed as expenses on the income statement.” What is your
best response to this statement?
1.

a.I’ve been struggling with that concept and I feel that dividends should be
shown on the balance sheet as assets.

2.

b.You are right. Revenues and expenses are shown on the income
statement. Dividends are a cost of generating revenues and that makes
them an expense. Why else would a corporation pay dividends?

3.

c.Dividends represent a portion of corporate profits that are paid to the
shareholders. They belong on the retained earnings statement.

4.

d.Dividends are deducted from retained earnings on the balance sheet.

Which of the following is not a satisfactory statement of the
accounting equation?
1.

a.Assets = Stockholders’ Equity – Liabilities

2.

b.Assets = Liabilities + Stockholders’ Equity

3.

c.Assets - Liabilities = Stockholders’ Equity

4.

d.Assets - Stockholders’ Equity = Liabilities

An income statement
1.

a.summarizes the changes in retained earnings for a specific period of
time.

2.

b.reports the changes in assets, liabilities, and stockholders’ equity over a
period of time.

3.

c.reports the assets, liabilities, and stockholders’ equity at a specific date.

4.

d.presents the revenues and expenses for a specific period of time.


Jimmy’s Repair Shop started the year with total assets of
$200,000 and total liabilities of $160,000. During the year the
business recorded $420,000 in revenues, $220,000 in expenses,
and dividends of $40,000. Stockholders’ equity at the end of the
year was
1.

a.$240,000.

2.

b.$200,000.

3.

c.$160,000.

4.

d.$180,000.

If the retained earnings account decreases from the beginning of
the year to the end of the year, then
1.

a.net income is less than dividends.

2.

b.there was a net income and no dividends.

3.

c.additional investments are less than net losses.

4.

d.net income is greater than dividends.

Henson Company began the year with retained earnings of
$330,000. During the year, the company recorded revenues of
$500,000, expenses of $380,000, and paid dividends of $40,000.
What was Henson’s retained earnings at the end of the year?
1.

a.$490,000

2.

b.$410,000

3.

c.$790,000

4.

d.$450,000

Retained earnings at the end of the period is equal to
1.

a.retained earnings at the beginning of the period plus net income minus
liabilities.


2.

b.retained earnings at the beginning of the period plus net income minus
dividends.

3.

c.net income.

4.

d.assets plus liabilities.

Pinson Company began the year with retained earnings of
$570,000. During the year, the company recorded revenues of
$600,000, expenses of $380,000, and paid dividends of
$140,000. What was Pinson’s retained earnings at the end of the
year?
1.

a.$930,000

2.

b.$650,000

3.

c.$1,030,000

4.

d.$500,000

The retained earnings statement would not show
1.

a.the retained earnings beginning balance.

2.

b.revenues and expenses.

3.

c.dividends.

4.

d.the ending retained earning balance.

An income statement shows
1.

a.revenues, liabilities, and stockholders’ equity.

2.

b.expenses, dividends, and stockholders’ equity.

3.

c.revenues, expenses, and net income.

4.

d.assets, liabilities, and stockholders’ equity.

The financial statement that summarizes the changes in retained
earnings for a specific period of time is the
1.

a.balance sheet.


2.

b.income statement.

3.

c.statement of cash flows.

4.

d.retained earnings statement.

The accounting equation may be expressed as
1.

a.Assets = Stockholders’ Equity – Liabilities.

2.

b.Assets = Liabilities + Stockholders’ Equity.

3.

c.Assets + Liabilities = Stockholders’ Equity.

4.

d.Assets + Stockholders’ Equity = Liabilities.

Finney Company began the year by issuing $40,000 of common
stock for cash. The company recorded revenues of $370,000,
expenses of $320,000, and paid dividends of $20,000. What was
Finney’s net income for the year?
1.

a.$30,000

2.

b.$70,000

3.

c.$50,000

4.

d.$90,000

A balance sheet shows
1.

a.revenues, liabilities, and stockholders’ equity.

2.

b.expenses, dividends, and stockholders’ equity.

3.

c.revenues, expenses, and dividends.

4.

d.assets, liabilities, and stockholders’ equity.

To show how successfully your business performed during a
period of time, you would report its revenues and expenses in the
1.

a.balance sheet.

2.

b.income statement.


3.

c.statement of cash flows.

4.

d.retained earnings statement.

Kilmer Corporation began the year with retained earnings of
$620,000. During the year, the company issued $840,000 of
common stock, recorded expenses of $2,400,000, and paid
dividends of $160,000. If Kilmer’s ending retained earnings was
$660,000, what was the company’s revenue for the year?
1.

a.$2,440,000

2.

b.$2,600,000

3.

c.$3,280,000

4.

d.$33,440,000

133 Free Test Bank for Accounting Tools for Business
Decision Making 5th Edition by Kimmel Multiple
Choice Questions - Page 4
In the annual report, where would a financial statement reader
find out if the company’s financial statements give a fair depiction
of its financial position and operating results?
1.

a.Notes to the financial statements

2.

b.Management discussion and analysis section

3.

c.Balance sheet

4.

d.Auditor’s report

Management’s views on the company’s short-term debt paying
ability, expansion financing, and results of operations are found in
the
1.

a.auditor’s report.

2.

b.management discussion and analysis section.

3.

c.notes to the financial statements.


4.

d.president’s state of the company report.

Which of the following clarifies information presented in the
financial statements, as well as expanding upon it where
additional detail is needed?
1.

a.Auditor’s report

2.

b.Management discussion and analysis section

3.

c.Notes to the financial statements

4.

d.President’s state of the company report

Marvin Services Corporation had the following accounts and
balances: Accounts payable$18,000Equipment$21,000; Accounts
receivable3,000Land21,000; Buildings?Unearned service
revenue6,000; Cash9,000Total stockholders' equity? If total
stockholder's equity was $57,000, what would be the balance of
the Buildings Account?
1.

a.$21,000

2.

b.$81,000

3.

c.$87,000

4.

d.$27,000

If total liabilities decreased by $75,000 and stockholders’ equity
decreased by $25,000 during a period of time, then total assets
must change by what amount and direction during that same
period?
1.

a.$100,000 increase

2.

b.$50,000 decrease

3.

c.$100,000 decrease

4.

d.$50,000 decrease

Elston Company compiled the following financial information as of
December 31, 2014:Service revenue$700,000; Common stock