Multiple Choice Questions

1. Which of the following is a financing activity?

a. A manufacturing company purchases supplies.

b. A retail company borrows $40,000 from a bank.

c. A manufacturing company acquires a new building.

d. A service organization pays the monthly utility bill.

2. If a company borrows cash from a bank, the effect on the accounting equation is as follows:

a. Assets increase, Liabilities increase

b. Assets decrease, Liabilities increase

c. Assets increase, Liabilities decrease

d. Assets decrease, Liabilities decrease

3. The balance sheet describes a company’s assets. Financial resources to acquire these assets are obtained from

a. Investing activities.

b. Financing activities and revenues earned.

c. Investing activities and expenses paid during a fiscal period.

d. None of the above.

4. Which of the following is an investing activity?

a. A manufacturer borrows from creditors.

b. A service firm pays a return to its stockholders.

c. A retailer sells goods to a not-for-profit agency at cost.

d. A government agency purchases a new mainframe computer system.

5. Which of the following is not an operating activity?

a. Merchandise is sold to customers.

b. Utility bills are paid.

c. Merchandise is shipped to customers.

d. Equipment is purchased for use in manufacturing.

6. Return on assets represents

a. Cash that is returned to investors.

b. Merchandise that is returned by customers.

c. The ratio of income to total assets.

d. The ratio of merchandise returned by customers to sales.

7. Accounting information is

Needed by managers for Needed by managers for

internal decision making persons outside the firm

a. Yes Yes

b. Yes No

c. No Yes

d. No No

8. Liability and owners’ equity accounts usually arise from which type of activities?

a. Investing activities

b. Financing activities

c. Operating activities

d. Manufacturing activities

9. Expresso Delivery Service purchased a new delivery truck for $21,000 by making a $4,000 cash payment and giving a $17,000 note payable to the seller. How were each of the following affected when this event was recorded in the firm’s accounting information system?

Assets Liabilities

a. Increased Increased

b. No change Increased

c. Increased Decreased

d. Decreased Increased

10. The statement of cash flows for the Halyard Exploration Company reported the following:

Cash paid for equipment ........$ 300,000

Cash paid to employees .......... 400,000

Cash paid to owners .......... 150,000

Cash paid to suppliers .......... 560,000

Cash received from customers ......1,200,000

What were Halyard’s net cash flows from operating, investing, and financing activities?

Operating Investing Financing

a. $240,000 ($300,000) $(150,000)

b. $500,000 ($860,000) $200,000

c. $640,000 ($860,000) $200,000

d. $240,000 ($860,000) $200,000

11. When an investor contributes cash to a business, the transaction is recorded as follows:

Debit Credit

a. Cash Retained Earnings

b. Cash Contributed Capital

c. Contributed CapitalCash

d. Retained EarningsCash