1. Financial accounting can be broadly defined as the area of accounting that prepares
a. general purpose financial statements to be used by parties internal to the
business enterprise only.
b. financial statements to be used by investors only.
c. general purpose financial statements to be used by parties both internal and
external to the business enterprise.
d. financial statements to be used primarily by management.
2.
Which of the following statements is not an objective of financial reporting?
a. Provide information that is useful in investment and credit decisions.
b. Provide information about enterprise resources, claims to those resources, and changes
to them.
c. Provide information on the liquidation value of an enterprise.
d. Provide information that is useful in assessing cash flow prospects.
3.
Who prepares financial reports for a particular company?
a. The Securities and Exchange Commission
b. The Board of Directors
c. The company’s management
d. The company’s auditors
4.
Annual reports of public companies
a. are published once per year.
b. include financial statements adjusted for inflation.
c.
are also known as Form 10-K.
d. are published by companies 4 times per year.
5.
Generally accepted accounting principles currently are issued primarily by the:
a.
Accounting Principles Board
b.
Financial Accounting Standards Board
c.
Securities and Exchange Commission
d.
Federal Trade Commission
6.
Compliance with GAAP in the US by publicly traded companies is enforced by the
a. SEC
b. IRS
c. State governments
d. FASB
7.
International Financial Reporting Standards (IFRS) are issued by
a. the United Nations.
b. the World Bank.
c. the Big Four accounting firms.
d. the IASB.
8.
The auditors are charged with responsibility
a. to detect financial fraud committed by employees during the course of their audit
b. to conduct a thorough and independent audit
c. to correct all errors in the financial statements
d. for the accuracy and completeness of the financial statements
9.
Which of the following clarifies information presented in the financial statements, as well
as expanding upon it where additional detail is needed?
a. Auditor’s report
b. Management discussion and analysis section
c. Notes to the financial statements
d. President’s state of the company report
10.
An investor wants to find the amount of cash and land that a company has. Where will
the investor look?
a. Statement of shareholders’ equity
b. Income statement
c. Balance sheet
d. Statement of cash flows
11.
Cash received by a company from its regular operations during the year is found in its
a. balance sheet.
b. statement of cash flows.
c. statement of shareholders’ equity.
d. auditor’s report.
12.
A company’s profits during its most recent year are found in its
a. balance sheet and income statement.
b. statement of cash flows only.
c. statement of shareholders’ equity only.
d. income statement and statement of shareholders’ equity.
13.
The cash paid during the year to satisfy a company’s debt is found in its
a. statement of cash flows.
b. income statement.
c. statement of shareholders’ equity.
d. auditor’s report.
14.
The amount which a company’s customers owe the company for products delivered or
services rendered is found in the
a. footnotes only.
b. income statement.
c. balance sheet.
d. statement of cash flows.
15.
Retained earnings may be described as
a. the total past profits retained in the business.
b. a company’s future growth.
c. the amount invested in the firm by its owners.
d. amounts retained for payments to vendors.
16.
Liabilities may be described as
a. amounts that will be used for future growth.
b. the amounts owed that must be paid in the future.
c. the total measured past growth of a firm less the amount distributed to the owners.
d. amounts the company paid during the past year.
17.
The common characteristic possessed by all assets is
a. long life.
b. great monetary value.
c. tangible nature.
d. future economic benefit.
18.
Expenses are incurred
a. only on rare occasions.
b. to produce assets.
c. to produce liabilities.
d. to generate revenues.
19.
Which of the following best describes assets paid to owners of a company as a return for
their initial investment?
a. payables
b. compensation contracts
c. dividends
d. interest
20.
When preparing the financial statements, we assume that the life of the entity will continue
beyond the current period. Which assumption are we most likely following?
a.
b.
c.
d.
Stable dollar theory.
Going concern assumption.
Economic entity assumption.
Fiscal period assumption.
21.
The matching principle states that
a. expenses should be recognized in the period that the related revenue is recognized.
b. after expenses have been identified in a particular accounting period in which they
were incurred, revenues can be recognized.
c. each company should use the same accounting principles as other companies use.
d. for every dollar of revenue recognized, the company should recognize a corresponding
dollar of expenses.
22.
Information is considered material if
a. it would have a bearing on decisions of those who use the financial statements.
b. there is a substantial likelihood that a reasonable investor would not be concerned
about the information.
c. an item is so insignificant that users would likely ignore it.
d. the FASB explicitly rules the transaction or item to be material.
23.
Which one of the following represents the expanded basic accounting equation?
a. Assets = Liabilities + Common Stock + Dividends – Revenue – Expenses
b. Assets + Dividends + Expenses = Liabilities + Common Stock + Revenues
c. Assets – Liabilities – Dividends = Common Stock + Revenues – Expenses
d. Assets = Revenues + Expenses – Liabilities
24.
In recording an accounting transaction in a double-entry system
a.
b.
c.
d.
the number of debit accounts must equal the number of credit accounts.
there must always be entries made on both sides of the accounting equation.
the amount of the debits must equal the amount of the credits.
there must only be two accounts affected by any transaction.
25.
An advantage of the single-step income statement over the multiple-step form is
a. the amount of information it provides.
b. its comprehensiveness.
c. its simplicity.
d. its use in computing ratios.
26.
For a jewelry retailer, which is an example of Other Revenues and Gains?
a. repair revenue
b. unearned revenue
c. gain on sale of display cases
d. discount received for paying for merchandise inventory within the discount period
The following information is for questions 27-29:
Garrison Corporation has the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Dividends are paid to the shareholders.
A utility bill for July is paid in August.
A new warehouse facility is purchased
Principal payments on outstanding debt are paid.
Employees wages are paid.
Forty-five units of inventory are sold for $100 each
Common stock is issued for $230,000 in cash.
A delivery van used for 5-years is sold for $12,000, which is its book value.
27.
Which of the above transaction(s) are examples of financing activities?
a. 1,4,7
b. 1,7,8
c. 3,8
d. 1,3,4,7,8
28.
Which of the above transaction(s) are examples of investing activities?
a. 3,4,7,8
b. 1,4,7
c. 4,7
d. 3,8
29.
Which of the above transaction(s) are examples of operating activities?
a. 2,3,5
b. 5,6,8
c. 2,3,5,6,8
d. 2,5,6
30.
Using borrowed funds to generate returns for the shareholders is called
a. leverage.
b. profitability.
c. taking a bath.
d. solvency.