Test bank for survey of accounting 6th edition

Test Bank for Survey of Accounting 6th Edition
Multiple Choice Questions
Who has the first preference to assets in case a business fails?
1.

Stockholders

2.

Long-term creditors

3.

Customers

4.

Employees

Debts owed by a business are referred to as:
1.

accounts receivable.

2.

equities.

3.

stockholders’ equity.

4.

liabilities.

If there was no beginning retained earnings, net income of $20,000, and
ending retained earnings of $6,000, how much were dividends?
1.

$10,000

2.

$4,000

3.

$6,000

4.

$14,000


Which of the following is an appropriate representation of the accounting
equation?
1.

Assets + Liabilities = Stockholders’ equity

2.

Assets = Liabilities + Stockholders’ equity

3.

Assets = Liabilities

4.

Assets = Liabilities + Retained earnings

The resources a business owns are called:
1.

assets.

2.

liabilities.

3.

earnings.

4.

stockholders' equity.

Rights to payments from customers are:

1.

liabilities.

2.

prepaid expenses.

3.

accounts receivable.

4.

accounts payable.

A note payable requires payment of the amount borrowed plus:
1.

interest.

2.

tax.

3.

overhead.

4.

dividend.

________ is an example of internal stakeholders.
1.

Managers

2.

Creditors

3.

Stockholders

4.

Suppliers

Under a premium-price emphasis, a business designs products that possess
_____ for which customers are willing to pay a premium price.
1.

unique attributes

2.

high costs

3.

high demand

4.

longer warranties

The debt created by a business when it makes a purchase on account is
referred to as an:
1.

account payable.

2.

account receivable.

3.

asset.

4.

expense payable.

Which statement is normally prepared first?
1.

Income statement


2.

Balance sheet

3.

Statement of cash flows

4.

Retained earnings statement

Which of the following is true in regards to a limited liability company?
1.

It is organized as a corporation.

2.

It can elect to be taxed as a partnership.

3.

It provides tax and liability advantages to the owners.

4.

All are correct.

Gilbert, Inc. had the following account balances at September 30, 2010. What
is Gilbert’s net income for the month of September? Accounts Payable $
5,000; Capital Stock 10,000; Cash 14,300; Equipment 15,400; Fees Earned
54,400; Miscellaneous Expense 18,200; Rent Expense 4,150; Retained
Earnings 6,550; Wages Expense 13,900
1.

$32,450

2.

$27,450

3.

$6,550

4.

$18,150

Which of the following is not a characteristic of a corporation?
1.

Corporations are organized as a separate legal taxable entity.

2.

Ownership is divided into shares of stock.


3.

Corporations experience an ease in obtaining large amounts of resources by issuing
stock.

4.

A corporation can elect to be taxed as a partnership.

Managers are evaluated primarily on the business's:
1.

tax collections.

2.

growth.

3.

economic performance.

4.

all of these.

When a business borrows money, it incurs a(n):

1.

tax.

2.

liability.

3.

receivable.

4.

additional equity.

Reporting the financial condition of a business at a point in time and the
changes in the financial condition of a business over a period of time are the
two major objectives of:
1.

tax accounting.

2.

union contracts.

3.

managerial accounting.

4.

financial accounting.


A summary of changes in the earnings retained by the corporation for a
specific period of time is known as a(n):
1.

income statement.

2.

balance sheet.

3.

statement of cash flows.

4.

retained earnings statement.

Browning, Inc. had revenues of $234,000, expenses of $175,000, and
dividends of $30,000 during 2012. Which of the following statements is
correct?
1.

Net income for 2012 totaled $29,000.

2.

Net income for 2012 totaled $59,000.

3.

Total retained earnings increased by $59,000 during 2012.

4.

Total retained earnings decreased by $30,000 during 2012.

Which of the following is considered an asset until consumed?
1.

Accounts payable

2.

Prepaid expense

3.

Accounts receivable

4.

Stockholders' equity

Which of the following would not be an example of a merchandising
business?
1.

The Walt Disney Company


2.

JCPenney

3.

Amazon.com

4.

Wal-Mart

Capital market stakeholders have an interest in the company because:
1.

they provide incentives for the company to market their products.

2.

they are part of the Marketing Department that is responsible for promoting the
products or services to increase the business profits.

3.

they help market their products to customers or find vendors to supply needed inputs.

4.

they provide major financing for the business.

The financial statement that presents a summary of the revenues and
expenses of a business for a specific period of time, such as a month or an
year, is called a(n):
1.

prior period statement.

2.

statement of retained earnings.

3.

income statement.

4.

balance sheet.

Given the following list of accounts, calculate Total Assets: Accounts
Receivable $ 5,000; Capital Stock 20,000; Cash 19,300; Equipment 15,400;
Fees Earned 44,400; Miscellaneous 18,200; Rent Expense 4,150; Retained
Earnings 6,550; Wages Expense 13,900

1.

$84,100

2.

$59,700


3.

$46,250

4.

$39,700

A low-cost emphasis strives to provide:
1.

no-frills, standardized products and services.

2.

products and services that provide unique market needs.

3.

products and services that provide prestige and image for customers.

4.

products and services that compete on features other than price.

The role of accounting in business is best defined as:
1.

an information system that provides reports to stakeholders about the economic
activities and condition of a business.

2.

a method of forecasting the future profitability of a company.

3.

the policies, procedures, and strategies used in a business.

4.

transaction analysis.

Motel 6, a company that helps customers find budget motels across the
nation, is an example of a business using which of the following?
1.

Low-cost emphasis

2.

Outreach emphasis

3.

Customer emphasis

4.

Premium-price emphasis


A summary of revenue and expenses for a specific period of time is a(n):
1.

income statement.

2.

balance sheet.

3.

statement of cash flows.

4.

retained earnings statement.

When a product is sold, the cost of the product sold is often called:
1.

cost of goods sold.

2.

selling cost.

3.

period cost.

4.

retained cost.

Which of the following businesses use a premium-price emphasis?
1.

Value City Furniture selling furniture at affordable prices

2.

Tommy Hilfiger selling products that have a unique image

3.

Wal-Mart reselling standardized products

4.

Southwest Airlines providing standardized services

Cash collected from sales during the normal course of business would be an
example of which type of business activity?
1.

Operating

2.

Investing

3.

Financing


4.

None of these

An entity that is organized according to state or federal statutes and in which
ownership is divided into shares of stock is a:
1.

proprietorship.

2.

corporation.

3.

partnership.

4.

governmental unit.

Governments have an interest in the economic performance of business
because of:
1.

tax collections.

2.

community involvement from the business.

3.

business incentives.

4.

all of these.

Which of the following is an intangible asset?
1.

Patent

2.

Cash

3.

Land

4.

Equipment


During 2012, Smith Corporation had an increase in total assets of $70,000 and
an increase in total liabilities of $90,000. Assuming that capital stock
increased by $5,000 and no dividends were paid, calculate Smith’s net income
or net loss for 2012.
1.

Net loss of $15,000

2.

Net loss of $20,000

3.

Net loss of $25,000

4.

Net income of $15,000

Which of the following is not an example of a capital market stakeholder?
1.

Banks

2.

Owners

3.

Suppliers

4.

Stockholders

_____ is the increase in assets from selling products and services.
1.

Revenue

2.

Liabilities

3.

Page 5 of14

4.

Products

5.

Stockholders’ Equity

Costs incurred in operating a business are also known as:
1.

revenues.


2.

expenses.

3.

liabilities.

4.

dividends.

The purchase of factory equipment would be an example of which type of
business activity?
1.

Financing

2.

Investing

3.

Operating

4.

All of these

Cash investments made by the stockholders of the business are reported on
the statement of cash flows in the:
1.

financing activities section.

2.

investing activities section.

3.

operating activities section.

4.

supplemental statement.

What is the primary objective of most businesses?
1.

To maximize profits

2.

To pay dividends to stockholders

3.

To provide a benefit to society

4.

To manufacture a quality product


A list of assets, liabilities, and owners' equity as of a specific date is a(n):
1.

income statement.

2.

balance sheet.

3.

statement of cash flows.

4.

retained earnings statement.

Use the following information to determine Total Stockholders’ Equity: Total
Assets $ 50,000; Total Liabilities 15,000; Total Stockholders’ Equity x; Total
Retained Earnings13,000
1.

$52,000

2.

$50,000

3.

$35,000

4.

$22,000

Which of the items below is not a business organization form?
1.

Venture entrepreneurship

2.

Proprietorship

3.

Partnership

4.

Corporation

A summary of the cash receipts and cash payments for a specific period of
time is a(n):
1.

income statement.

2.

balance sheet.


3.

statement of cash flows.

4.

retained earnings statement.

Shares of ownership are evidenced by issuing:
1.

shares payable.

2.

commercial paper.

3.

shares of stock.

4.

notes payable.

Financing activities involve obtaining _____ to operate a business.
1.

products

2.

customers

3.

business incentives

4.

funds

Which of the following types of business is popular for its ease and low cost
of organizing?
1.

Not-for-profit

2.

Corporation

3.

Partnership

4.

Proprietorship

Which of the following are business stakeholders?

1.

Stockholders


2.

Suppliers

3.

Customers

4.

All of these

The portion of a corporation's net income retained in the business is called:
1.

interest earnings.

2.

dividends.

3.

tax expense.

4.

retained earnings.

True False Questions
Accounting is thought to be the "language of business" because business
information is communicated to stakeholders.
1.

True

2.

False

The stockholders’ equity of a company should equal the sum of its total
assets and total liabilities.
1.

True

2.

False


Merchandising businesses produce products rather than provide services to
customers.
1.

True

2.

False

John Deere is a leading manufacturer of agricultural machinery in the world
producing products that serve unique market needs. Therefore, John Deere is
an example of a company that uses a premium-price emphasis to attract
customers.
1.

True

2.

False

A corporation is a business that is legally separate and distinct from its
owners.
1.

True

2.

False

The ownership of a proprietorship is divided into shares of stock owned by its
stockholders.

1.

True

2.

False

Assets are acquired through investing activities when resources are
purchased.
1.

True

2.

False


A liability is a legal obligation to repay the amount borrowed according to the
terms of the borrowing agreement.
1.

True

2.

False

All merchandising businesses are organized as corporations.

1.

True

2.

False

A primary disadvantage of corporations is that the financial resources
available to them are limited.
1.

True

2.

False

A limited liability company combines attributes of a partnership and a
corporation.
1.

True

2.

False

A partnership is owned by two or more individuals.
1.

True

2.

False

A business stakeholder has an interest in the economic performance of a
business.
1.

True


2.

False

The objective of most businesses is to maximize profits.
1.

True

2.

False

The basic type of stock issued to owners is called common stock.
1.

True

2.

False

Companies using a low-cost emphasis provide products and services that
compete on features other than price.
1.

True

2.

False

The branch of accounting related to the management’s financial decisions is
known as financial accounting.
1.

True

2.

False

The balance sheet represents the accounting equation.
1.

True

2.

False

The popularity of the sole proprietorship is due to the ease and low cost of
organizing.
1.

True


2.

False

Creditors have preference to assets behind stockholders if a business fails.
1.

True

2.

False

Stockholders of a corporation are its internal stakeholders.
1.

True

2.

False

Manufacturing businesses change basic inputs into products that are sold to
individual customers.
1.

True

2.

False

Free Text Questions
How do businesses make money? What strategies can they use to gain a
competitive advantage?
Answer Given

Businesses have the objective of making money by generating more revenues than
costs. Businesses can seek competitive advantage by using a premium-price strategy
or by using a low-cost strategy. A premium-price strategy tries to meet a unique
market need based on quality, reliability, image, or design, allowing it to charge a
higher price. A low-cost strategy focuses on efficiency in product design and
production to offer a lower price due to lower costs.


Describe business stakeholders. State the classification of business
stakeholders.
Answer Given

Business stakeholders are persons or entities that have an interest in the economic
performance of a company. (1) Capital market stakeholder; (2) Product or service
market stakeholder; (3) Government stakeholder; (4) Internal stakeholder

Define accounting and its role in business.
Answer Given

Accounting provides information for managers that can be used in operations of a
business. Accounting provides information to external stakeholders to use in
assessing the economic performance and condition of the business.

What is the basic accounting equation, and which financial statement is
prepared from this equation?
Answer Given

Assets = Liabilities + Stockholders' Equity; the balance sheet is prepared from this
equation.