147 test bank for financial accounting a business process approach 3rd edition

147 Test Bank for Financial Accounting A Business
Process Approach 3rd Edition
True False Questions - Free Text Questions –

Multiple Choice Questions-Page 1
Which type of business organization finds it easiest to raise large amounts of
capital?
1.

A. corporation

2.

B. partnership

3.

C. sole proprietorship

4.

D. Two of these are correct.

The outputs of a firm are its ________.
1.

A. capital contributions

2.

B. services provided to customers

3.

C. delivery of products to customers

4.

D. Two or more of these are correct.

Huntington Bank is an example of a ________ firm.
1.

A. service

2.

B. merchandising

3.

C. manufacturing


4.

D. financial services

Disadvantages of the corporate form of business organization include
________.
1.

A. double taxation

2.

B. limited liability for shareholders

3.

C. separation of ownership and management

4.

D. two or more of these

A service company ________.
1.

A. is a wholesale business

2.

B. manufactures goods

3.

C. is a retail business

4.

D. None of these are correct.

Toyota is an example of a ________ firm.
1.

A. service

2.

B. merchandising

3.

C. manufacturing

4.

D. financial services

For which organization are owners typically separate from managers and not
involved in the day-to-day operations, sometimes resulting in managers
making decisions that are not in the best interest of the owner(s.?
1.

A. sole proprietorship


2.

B. partnership

3.

C. corporation

4.

D. sole proprietorship and partnership

Which of the following is true about a sole proprietorship?
1.

A. A sole proprietorship is a company owned by two or more individuals.

2.

B. The owner's liability is limited to the amounts invested in the business.

3.

C. Income from a sole proprietorship is distributed to the owner in the form of a
dividend.

4.

D. The income from a sole proprietorship is taxed on the owner's personal income tax
return.

Double taxation occurs because businesses pay ________.
1.

A. sales tax and income tax

2.

B. property taxes and income taxes

3.

C. taxes on net income, and owners pay taxes on the remaining net income distributed
as dividends

4.

D. social security taxes for employees, and employees also pay the same amount for
themselves

The two types of merchandising businesses include ________.
1.

A. wholesale and retail

2.

B. service and financial

3.

C. manufacturing and retail

4.

D. service and wholesale

The governmental agency that monitors the stock market and the financial
reporting of firms that trade in the market is the ________.
1.

A. Financial Accounting Standards Board (FASB.

2.

B. Internal Revenue Service (IRS.

3.

C. Public Company Accounting Oversight Board (PCAOB.

4.

D. Securities and Exchange Commission (SEC.

Target is an example of a ________.
1.

A. sole proprietorship

2.

B. partnership

3.

C. corporation

4.

D. not-for-profit

The inputs of a firm include ________.
1.

A. revenues

2.

B. liabilities

3.

C. inventory and supplies

4.

D. All of these are correct.

For which organization is there double taxation?
1.

A. sole proprietorship

2.

B. partnership


3.

C. corporation

4.

D. sole proprietorship, partnership and corporation

For which organization are the personal assets of the owners at risk?
1.

A. sole proprietorship

2.

B. partnership

3.

C. corporation

4.

D. sole proprietorship and partnership

Dell Inc.'s distribution of earnings to owners is called dividends. Dell must be
a ________.
1.

A. sole proprietorship

2.

B. partnership

3.

C. corporation

4.

D. sole proprietorship or partnership

Stock sold for the first time is called ________.
1.

A. issued

2.

B. traded

3.

C. capital

4.

D. dividends

Which of the following is true about a corporation?
1.

A. Corporations must have a minimum of two or more shareholders.


2.

B. Each individual shareholder has individual legal responsibility for the corporation's
actions.

3.

C. Corporations are exempt from taxes; however, the shareholders are required to pay
taxes on dividends received.

4.

D. Managers of corporations can be held responsible for the actions of the corporation.

The stock market is ________.
1.

A. located in New York City

2.

B. the general term used to refer to all stock exchanges

3.

C. where the IRS is located

4.

D. where businesses become incorporated

The four types of business are ________.
1.

A. service, wholesale, retail, and financial

2.

B. for profit, nonprofit, wholesale, and retail

3.

C. service, merchandising, manufacturing, and financial services

4.

D. financial, manufacturing, service, and wholesale

Which organization should keep its financial records separate from the
personal financial affairs of the owner(s.?
1.

A. sole proprietorship

2.

B. partnership

3.

C. corporation

4.

D. All of these are correct.


A partnership ________.
1.

A. is a business owned by two or more individuals

2.

B. has owners who are legally liable for everything the company does

3.

C. may be organized under a partnership agreement

4.

D. is all of these

For which organization is ownership represented by shares of stock?
1.

A. sole proprietorship

2.

B. partnership

3.

C. corporation

4.

D. sole proprietorship and partnership

Target is an example of a ________ firm.
1.

A. service

2.

B. merchandising

3.

C. manufacturing

4.

D. financial services

When starting a business you should first ________.
1.

A. write a business plan

2.

B. borrow from creditors

3.

C. purchase inventory


4.

D. become incorporated

Doolittle & Daley, attorneys at law, is an example of a ________.

1.

A. sole proprietorship

2.

B. partnership

3.

C. corporation

4.

D. not-for-profit

The owners of a corporation are called ________.
1.

A. shareholders

2.

B. partners

3.

C. stockholders

4.

D. two or more of these

A business form in which the partners are not personally liable for the
malpractice of any of the other partners is called a ________.
1.

A. corporation

2.

B. limited liability partnership

3.

C. modified sole proprietorship

4.

D. partnership

Limited legal liability for owners is a characteristic of ________.
1.

A. sole proprietorships

2.

B. partnerships

3.

C. corporations

4.

D. not-for-profits

Financial services companies ________.
1.

A. deal in services related to money

2.

B. sell insurance to their customers

3.

C. lend money to consumers to pay for cars and houses

4.

D. All of these are correct.

Which of the following is legally a separate entity from its owner(s.?
1.

A. sole proprietorship

2.

B. partnership

3.

C. corporation

4.

D. Two of these are correct.

The United Way is an example of a ________.
1.

A. sole proprietorship

2.

B. partnership

3.

C. corporation

4.

D. not-for-profit

Stock may be purchased ________.
1.

A. on a stock exchange


2.

B. on the internet

3.

C. from a stockbroker

4.

D. from more than one of these

A corporation ________.
1.

A. is a legal entity separate from the owners

2.

B. is a manufacturer and not a service organization

3.

C. may cause unlimited liability for its shareholders

4.

D. provides goods or services for the sole purpose of helping people

Which of these businesses pays federal income taxes on its income?
1.

A. corporation

2.

B. partnership

3.

C. sole proprietorship

4.

D. Two of these are correct.

A manufacturing business ________.
1.

A. will lend money to customers

2.

B. buys goods for resale

3.

C. provides services to its customers

4.

D. makes the products it sells


Corporations are ________.
1.

A. for-profit businesses only

2.

B. manufacturers and not service organizations

3.

C. owned by shareholders

4.

D. exempt from legal liability

Which type of business organization exposes its owner(s. to unlimited
liability?
1.

A. corporation

2.

B. partnership

3.

C. sole proprietorship

4.

D. Two of these are correct.

A business in the form of a sole proprietorship ________.
1.

A. is separate and distinct from its owner

2.

B. is a separate legal entity

3.

C. files its own tax return

4.

D. is a company with a single owner

The law firm of Doolittle and Baroque is an example of a ________ firm.
1.

A. service

2.

B. merchandising

3.

C. manufacturing


4.

D. financial services

Advantages of the corporate form of business organization include ________.
1.

A. double taxation

2.

B. limited liability for shareholders

3.

C. separation of ownership and management

4.

D. Two or more of these are correct.

A partnership agreement ________.
1.

A. exempts partners from unlimited liability

2.

B. establishes the partnership as a separate legal entity

3.

C. details how much work partners will do and how they will split up the profits

4.

D. defines how many shares of stock the partnership may sell to investors

Ira Roth, CPA, is an example of a ________.
1.

A. sole proprietorship

2.

B. partnership

3.

C. corporation

4.

D. not-for-profit

The ownership structure of a business includes the following forms
________.
1.

A. individual, group, and corporate

2.

B. sole proprietorship, partnership, and corporation


3.

C. service, manufacturing, and financial

4.

D. debtors, creditors, and owners

85 Free Test Bank for Financial Accounting A Business
Process Approach 3rd Edition by Reimers Multiple
Choice Questions-Page 2
The cost of borrowing money is called ________.
1.

A. a financing activity

2.

B. principal

3.

C. interest

4.

D. an investing activity

A person who starts his own business is considered ________.
1.

A. a manager

2.

B. an entrepreneur

3.

C. a shareholder

4.

D. a capitalist

Using Lox Stock & Bagel Company's financial statement above, determine the
amount of the owners' claims that have been contributed to the company.
1.

A. $10,000

2.

B. $39,910

3.

C. $11,910


4.

D. $21,910

In 2012, Baroque, Inc., a U. S. corporation, earned profits of $200,000 before
taxes. After paying federal income taxes of 30%, all of Baroque's after-tax
income was paid to its only shareholder. The federal income tax rate on
corporate dividends is 15%. How much tax will Baroque's shareholder pay on

these dividends?
1.

A. $21,000

2.

B. $30,000

3.

C. $60,000

4.

D. $102,000

Net income flows from ________.
1.

A. the income statement to the statement of changes in shareholders' equity

2.

B. the income statement to the balance sheet

3.

C. the balance sheet to the statement of cash flows

4.

D. the statement of cash flows to the income statement

Wok N Roll, Inc. shows $300,000 of assets and $60,000 of shareholders' equity
on its balance sheet. Liabilities must equal ________.
1.

A. $360,000

2.

B. $300,000

3.

C. $240,000

4.

D. $60,000


The four financial statements used to report a company's financial condition
include ________.
1.

A. balance sheet, income statement, statement of changes in shareholders' equity, and
statement of cash flows

2.

B. changes in balance sheet, statement of flows, statement of changes in balances,
and statement of cash flows

3.

C. balance sheet, statement of earnings, statement of changes in shareholders' equity,
and statement of budgets

4.

D. income sheet, balance of earnings, statement of changes in shareholders' equity,
and statement of cash flows

The missing name (a.. of Lox Stock & Bagel Company's financial statement
above is the ________.
1.

A. Balance sheet

2.

B. Income statement

3.

C. Statement of changes in shareholders' equity

4.

D. Statement of cash flows

The stock exchange is ________.
1.

A. where all companies must register to exchange goods and services

2.

B. regulated by the Securities and Exchange Commission (SEC.

3.

C. regulated by the Internal Revenue Service (IRS.

4.

D. regulated by the Public Company Accounting Oversight Board (PCAOB.


Team Shirts, Inc. repays a $2,000 loan. This transaction ________.
1.

A. causes total assets to increase

2.

B. causes total liabilities to decrease

3.

C. is an investing activity

4.

D. causes total shareholders' equity to increase

Which financial statement shows Inventory?
1.

A. balance sheet

2.

B. income statement

3.

C. statement of changes in shareholders' equity

4.

D. statement of cash flows

For the month of June, Team Shirts, Inc., received $6,000 in contributed
capital, $3,000 in sales revenue, paid $2,000 in expenses, and $500 in
dividends. Its net income was ________.
1.

A. $9,000

2.

B. $7,000

3.

C. $1,000

4.

D. $500

Revenues include ________.
1.

A. the amount earned from providing goods to customers

2.

B. the amount received from borrowing


3.

C. the amount earned from providing services to customers

4.

D. two or more of these

How many of a company's four financial statements report information about
the company at a specific point in time?
1.

A. one

2.

B. two

3.

C. three

4.

D. four

A balance sheet ________.
1.

A. describes the financial situation of a company at a specific point in time

2.

B. is a summary of all of the revenues minus all of the expenses for an accounting
period

3.

C. shows the changes that took place in the amount of shareholders' equity during a
period

4.

D. is a list of all the cash collected and cash paid during a period

Which of the following increases retained earnings?
1.

A. issuance of stock

2.

B. revenues

3.

C. purchase of inventory

4.

D. dividends


The stock exchange is ________.
1.

A. where companies may issue stock

2.

B. regulated by the Securities and Exchange Commission (SEC.

3.

C. where buyers and sellers exchange their shares of stock.

4.

D. All of these are correct.

The statement of cash flows ________.
1.

A. describes the financial situation of a company at a specific point in time

2.

B. is a summary of all of the revenues minus all of the expenses for an accounting
period

3.

C. shows the changes that took place in the amount of shareholders' equity during a
period

4.

D. is a list of all the cash collected and cash paid during a period

The Cash balance (b.. in Lox Stock & Bagel Company's financial statement
above is ________.
1.

A. the same as the retained earnings

2.

B. $39,910

3.

C. $3,000

4.

D. $10,910

How many of a company's four financial statements report information about
the company over a specific period of time?
1.

A. one


2.

B. two

3.

C. three

4.

D. four

Dividends are ________.
1.

A. the same as expenses

2.

B. a reduction in retained earnings

3.

C. owners' contributions to the firm

4.

D. another term for each partner's share of partnership income

A single-step income statement ________.
1.

A. is the preferred method of reporting revenues, expenses, and cash because of the
ease of preparation

2.

B. groups all revenues together and shows all expenses deducted from total revenue

3.

C. includes the subtotal Gross profit in the presentation

4.

D. is preferred by business owners because the information presented is timely, and
thus useful

Using Lox Stock & Bagel Company's financial statement above, determine the
amount of the company's largest resource.
1.

A. $11,910

2.

B. $39,910

3.

C. $18,000

4.

D. $25,000


On March 1, Team Shirts had a beginning balance in retained earnings of
$1,200. During March, Team Shirts paid $200 in dividends and had net income
of $2,000. The March 31 balance in retained earnings was ________.
1.

A. $3,000

2.

B. $3,200

3.

C. $3,400

4.

D. $1,200

The Team Shirts' balance sheet has assets of $6,500 and liabilities of $4,000.
Its shareholders' equity is ________.
1.

A. $10,500

2.

B. $2,500

3.

C. $6,500

4.

D. $4,000

Team Shirts, Inc. pays $600 for insurance. This transaction ________.
1.

A. causes total assets to increase and total liabilities to increase

2.

B. causes total liabilities to increase and retained earnings to decrease

3.

C. is an investing activity

4.

D. is an operating activity

An audit opinion ________.

1.

A. is a report prepared by a Certified Public Accountant (CPA. indicating the financial
statements have been examined


2.

B. is required by the Securities and Exchange Commission to accompany the financial
statements of publicly-traded companies

3.

C. is a report prepared by the Internal Revenue Service (IRS.

4.

D. is two or more of these

Comparative balance sheets ________.
1.

A. include balances of two consecutive years

2.

B. include gross profit and operating income

3.

C. report financial ratios for the current year which are compared to the prior year's

4.

D. report revenues for both the current and previous years

Using Lox Stock & Bagel Company's financial statement above, determine the
amount that represents the earnings kept in the company.
1.

A. the Cash balance

2.

B. $21,910

3.

C. $10,910

4.

D. $11,910

The Retained earnings balance (c.. in Lox Stock & Bagel Company's is
________.
1.

A. the same as the Cash balance

2.

B. $21,910

3.

C. $10,910

4.

D. $11,910


The statement of changes in shareholders' equity ________.
1.

A. describes the financial situation of a company at a specific point in time

2.

B. is a summary of all of the revenues minus all of the expenses for an accounting
period

3.

C. shows the changes that took place in the amount of shareholders' equity during a
period

4.

D. is a list of all the cash collected and cash paid during a period

In which of the following are the owners' or owner's personal assets at risk if
the business does not have enough money to pay its liabilities?
1.

A. sole proprietorship

2.

B. partnership

3.

C. corporation

4.

D. Two of these are correct.

Audited financial statements have been examined by ________.
1.

A. owners

2.

B. Certified Public Accountants (CPAs.

3.

C. Internal Revenue Service (IRS. agents

4.

D. Securities and Exchange Commission (SEC. examiners


During the year, The Mane Event, Inc. had sales of $300,000 and had expenses
of $240,000. The owners were paid $20,000 in dividends. Net income for the
year equals ________.
1.

A. $90,000

2.

B. $60,000

3.

C. $50,000

4.

D. $40,000

Sara contributes $5,000 of her own money to start her business, Team Shirts,
Inc. From Team Shirts' perspective, it ________.
1.

A. gets cash and gives up stock

2.

B. gets stock and gives up cash

3.

C. gets ownership and gives up contributed capital

4.

D. is an operating activity

Which of the following statements reports the line item Gross profit?
1.

A. the single-step income statement

2.

B. the multistep income statement

3.

C. the single-step balance sheet

4.

D. the multistep balance sheet

Using Lox Stock & Bagel Company's financial statement above, determine the
amount of the creditors' claims to the company's resources.
1.

A. $10,910


2.

B. $38,910

3.

C. $18,000

4.

D. $28,910

An income statement ________.
1.

A. describes the financial situation of a company at a specific point in time

2.

B. is a summary of all of the revenues minus all of the expenses for an accounting
period

3.

C. shows the changes that took place in the amount of shareholders' equity during a
period

4.

D. is a list of all the cash collected and cash paid during a period

Mia Hero, Inc. had a retained earnings balance of $7,000 on December 31,
2011. For the year 2012, sales revenues are $15,000 and expenses are $13,000.
If no dividend is declared or paid in 2012, retained earnings at December 31,
2012 equals ________.
1.

A. $9,000

2.

B. $10,000

3.

C. $35,000

4.

D. some other amount

Team Shirts, Inc. pays $5,000 cash for T-shirts from a supplier. This
transaction ________.
1.

A. is a financing activity

2.

B. causes an increase in total assets


3.

C. is an operating activity

4.

D. is an investing activity

The purpose of the financial statements is to provide financial information
needed by ________.
1.

A. investor and creditors

2.

B. regulators

3.

C. vendors and customers

4.

D. all of these