1. Merchandising businesses produce products rather than provide services to customers. a. true b. false Q2. Assets are acquired through investing activities when resources are purchased. a. true b. false Q3. The objective of most businesses is to maximize profits. a. true b. false Q4. A limited liability corporation combines attributes of a partnership and a corporation. a. true b. false Q5. A note payable requires payment of the amount borrowed plus a. interest. b. cash. c. accounts payable. d. investments. Q6. Large corporations such as ExxonMobil and Walmart are organized as limited liability companies. a. true b. false Q7. A summary of changes in the earnings retained in the corporation for a specific period of time is a(n) a. income statement. b. balance sheet. c. statement of cash flows. d. retained earnings statement. Q8. Which of the following is an example of an intangible asset? a. Patent b. Cash c. Land d. Equipment Q9. The role of accounting in business is best defined as a. an information system that provides reports to stakeholders about the economic activities and condition of a business. b. a method of forecasting the future profitability of a company. c. the policies, procedures, and strategies used in a business. d. transaction analysis. Q10. Costs incurred in operating a business are also known as a. revenues. b. expenses. c. liabilities. d. dividends. Q11. Which principle determines the amount initially entered into the records for purchases? a. Cost principle b. Going concern concept c. Business entity concept d. Objectivity concept Q12. Stockholders in a corporation are internal stakeholders. a. true b. false Q13. A summary of the cash receipts and cash payments for a specific period of time is a(n) a. income statement. b. balance sheet. c. statement of cash flows. d. retained earnings statement. Q14. Which of the following is TRUE in regards to a limited liability company? a. It is organized as a corporation. b. It can elect to be taxed as a partnership. c. It provides tax and liability advantages to the owners. d. All are correct. Q15. Manufacturing businesses change basic inputs into products that are sold to individual customers. a. true b. false Q16. Financing activities involve obtaining _____ to operate a business. a. products b. customers c. business incentives d. funds Q17. Motel 6 is an example of a business using which of the following? a. Low-cost emphasis b. Combination emphasis c. Differentiation strategy d. Premium-price emphasis Q18. When a product is sold, this cost is often called a. cost of goods sold. b. revenue. c. products. d. retained earnings. Q19. Who has first preference to assets in case a business fails? a. Stockholders b. Long-term creditors c. Customers d. Employees Q20. Which of the following businesses use a premium-price emphasis? a. Value City Furniture b. Abercrombie & Fitch c. Wal-Mart Supercenters d. Southwest Airlines Q21. A partnership is owned by two or more individuals. a. true b. false Q22. Accounting is thought to be the 'language of business' because business information is communicated to stakeholders. a. true b. false Q23. Including all relevant data a reader needs to understand the financial condition and performance of a business refers to which concept? a. Adequate disclosure concept b. Going concern concept c. Objectivity concept d. Business entity concept Q24. A business stakeholder has an interest in the economic performance of a business. a. true b. false Q25. 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 year, is called a(n) a. prior period statement. b. statement of retained earnings. c. income statement. d. balance sheet. Q26. When an account receivable is collected in cash, the total assets of the business increase. a. true b. false Q27. Dividends are an example of an expense. a. true b. false Q28. Rush Corporation borrowed $25,000 from the bank. Which of the following accurately shows the effects of the transaction? a. Increase cash $25,000 and decrease notes payable $25,000 b. Increase cash $25,000 and increase notes payable $25,000 c. Decrease cash $25,000 and decrease notes payable $25,000 d. Decrease cash $25,000 and increase notes payable $25,000 Q29. The basic financial statements do NOT include the a. income statement. b. tax return. c. balance sheet. d. statement of cash flows. Q30. Gibbs Company has $16,000 in Retained Earnings, $27,000 in Assets, and $5,000 in Liabilities. How much is in Common Stock? a. $22,000 b. $16,000 c. $11,000 d. $6,000 Q31. The effect of every transaction is an increase or a decrease in one or more of the accounting equation elements. a. true b. false Q32. The payment of utilities expense in cash would affect the operating activities in the statement of cash flows and the income statement but NOT the balance sheet. a. true b. false Q33. The statement of cash flows is integrated with the balance sheet because a. the cash at the beginning of the period plus or minus the cash flows from operating, investing, and financing activities equals the end of period cash reported on the balance sheet. b. the cash at the beginning of the period plus or minus the net income equals the end of period cash reported on the balance sheet. c. the cash at the beginning of the period plus or minus assets and liabilities equals the end of period cash reported on the balance sheet. d. the cash at the beginning of the period plus or minus the cash flows from operating activities equals the end of period cash reported on the balance sheet. Q34. By keeping a running total of the effects of transactions, the accounting equation provides a framework for summarizing the effects of a series of transactions. a. true b. false Q35. Anthony, Inc. buys land for $50,000 cash. The net affect on assets is a. $50,000 increase. b. $0. c. $50,000 decrease. d. $25,000 increase. Q36. For EFG Co., the transaction 'Purchase of store equipment with a note payable' would a. increase total assets. b. decrease total assets. c. have no effect on total assets. d. decrease total liabilities. Q37. Flow, Inc. received cash from fees earned. How does this transaction affect the Statement of Cash Flows? a. Increase cash from Operating Activities b. Increase cash from Investing Activities c. Increase cash from Financing Activities d. No effect on the Statement of Cash Flows Q38. Johnson, Inc. paid rent expense of $3,500 for the month of October. How are the accounts affected due to this transaction? a. Increase in cash $3,500 and increase in retained earnings $3,500 b. Increase in cash $3,500 and decrease in retained earnings $3,500 c. Decrease in cash $3,500 and decrease in retained earnings $3,500 d. Decrease in cash $3,500 and increase in retained earnings $3,500 Q39. Equality of the accounting equation means that no errors have occurred. a. true b. false Q40. Which of the following group of accounts are all assets? a. Cash, Accounts Payable, Buildings b. Accounts Receivable, Revenue, Cash c. Prepaid Expenses, Buildings, Patents d. Unearned Revenues, Prepaid Expenses, Cash Q41. Which of the following transactions changes the mix of assets only? a. Paid for supplies with cash b. Borrowed money from Second National Bank c. Received money for fees earned d. Received a utility bill Q42. For EFG Co., the transaction 'Receipt of interest income' would a. increase total assets. b. decrease total assets. c. have no effect on total assets. d. decrease total liabilities. Q43. For EFG Co., the transaction 'Billed a customer for fees earned' would a. increase total assets. b. decrease total assets. c. have no effect on total assets. d. increase total liabilities. Q44. Johnson, Inc. receives $5,000 cash for fees earned. What is the effect of this transaction? a. Total assets remain unchanged. b. Cash flow from Financing Activities will increase. c. Net income will increase. d. Retained earnings will remain unchanged. Q45. A _____ is an economic event that under generally accepted accounting principles affects an element of the financial statements and must be recorded. a. framework b. control c. set of rules d. transaction Q46. The basic elements of a financial accounting system include a framework for preparing financial statements. a. true b. false Q47. Buying equipment for cash affects which accounts? a. Cash only b. Retained earnings only c. Equipment and retained earnings d. Cash and equipment Q48. A to Z Corporation engaged in the following transaction 'Issued a $30,000 note payable to borrow cash from the bank.' On the Statement of Cash Flows, the transaction would be classified as a. Cash Flows from Operating Activities. b. Cash Flows from Investing Activities. c. Cash Flows from Financing Activities. d. Noncash transaction. Q49. A to Z Corporation engaged in the following transaction 'Paid a $10,000 cash dividend.' On the Statement of Cash Flows, the transaction would be classified as a. Cash Flows from Operating Activities. b. Cash Flows from Investing Activities. c. Cash Flows from Financing Activities. d. Noncash transaction. Q50. Johnson, Inc. purchased land for cash. What effect does this transaction have on the following accounts: a. Increase in Cash and decrease in Land b. Decrease in Cash and decrease in Land c. Increase in Cash and increase in Land d. Decrease in Cash and increase in Land Q51. When an adjusting entry is made to record insurance expense and reduce the prepaid insurance account, which section of the statement of cash flows is affected? a. Cash Flow from Operating Activities b. Cash Flow from Investing Activities c. Cash Flow from Financing Activities d. There is no effect on the statement of cash flows. Q52. X&Y Co. received $4,000 in payments from clients for services billed in a previous month. What effect does this transaction have on the accounts under the accrual basis of accounting? a. Total assets increase by $4,000. b. Assets will increase by $4,000 and revenues will increase $4,000. c. Total assets will be decrease by $4,000. d. The net effect on assets is zero. Q53. Accrued expenses are expenses that have been incurred and paid. a. true b. false Q54. Accumulated depreciation is _____ to get the carrying value. a. added to equipment b. subtracted from equipment c. added to accounts payable d. subtracted from accounts payable Q55. Expenses on the income statement are assets used up or services consumed in the process of generating revenues. a. true b. false Q56. It is easy to objectively determine the physical decline in the ability of fixed assets to provide service. a. true b. false Q57. Cash receipts from interest and dividends are classified as a. investing activities. b. operating activities. c. either financing or investing activities. d. financing activities. Q58. The balance in the office supplies account on June 1 was $5,200, supplies purchased during June were $2,500, and the supplies on hand at June 30 were $1,500. The amount to be used for the appropriate adjusting entry is a. $6,700. b. $2,500. c. $9,200. d. $6,200. Q59. Flyer Co. billed a client for flying lessons given in January. The payment was received in February. Under the accrual basis of accounting, when should Jedi record the revenue? a. January b. February c. Some in January and some in February d. Jedi should not record any revenue Q60. The revenue recognition concept states that revenue should be recorded in the same period as the cash is received. a. true b. false Q61. To arrive at cash flows from operations, it is necessary to convert the income statement from an accrual basis to the cash basis of accounting. a. true b. false Q62. Land is an example of a current asset. a. true b. false Q63. Rights that are short-term in nature are called intangible assets. a. true b. false Q64. XYZ Co. received $3,000 in payments from clients for services billed in a previous month. Which accounts will be affected and by what amounts under the accrual basis of accounting? a. Cash will increase by $3,000 and accounts receivable decrease by $3,000. b. Cash will increase by $3,000 and revenues will increase $3,000. c. Accounts receivable will increase by $3,000 and revenue will increase by $3,000. d. Accounts receivable will increase by $3,000 and cash will increase by $3,000. Q65. The fixed asset section of a balance sheet may also be labeled as property, plant, and equipment. a. true b. false Q66. An adjusting entry would adjust an expense account so that the expense is reported when incurred. a. true b. false Q67. Every company must use the cash basis of accounting. a. true b. false Q68. On the statement of cash flows prepared by the indirect method, a $50,000 gain on the sale of investments would be a. deducted from net income in converting the net income reported on the income statement to cash flows from operating activities. b. added to net income in converting the net income reported on the income statement to cash flows from operating activities. c. added to cash received from the sale to determine cash flows from investing activities. d. deducted from cash received from the sale to determine cash flows from investing activities. Q69. Accrued expenses are ordinarily reported on the balance sheet as a. assets. b. liabilities. c. fixed assets. d. prepaid expenses. Q70. Under the cash basis of accounting, no adjustments are necessary prior to the preparation of the financial statements. a. true b. false Q71. Which of the following should be deducted from net income in calculating net cash flow from operating activities using the indirect method? a. A decrease in inventory b. A decrease in accounts payable c. Preferred dividends declared and paid d. A decrease in accounts receivable Q72. Which one of the following should be added to net income in calculating net cash flow from operating activities using the indirect method? a. A gain on the sale of land b. A decrease in accounts payable c. An increase in accrued liabilities d. Dividends paid on common stock Q73. Under accrual accounting, expenses are recorded when incurred regardless of when paid. a. true b. false Q74. The matching concept requires expenses to be recorded in the same period that the related revenue is recorded. a. true b. false Q75. Under the cash basis of accounting, expenses are recorded when paid. a. true b. false Q76. Which of the following would NOT affect the operating activities section of the statement of cash flows, using the indirect method? a. Decrease in merchandise inventory b. Payment on a note payable c. Decrease in unearned rent d. Depreciation expense Q77. The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a a. multiple-step statement. b. revenue statement. c. report-form statement. d. single-step statement. Q78. When merchandise that was sold is returned, the seller decreases accounts payable. a. true b. false Q79. Which of the following are subtracted from sales to arrive at net sales? a. Sales returns b. Merchandise inventory c. Accounts receivable d. Cost of merchandise sold Q80. Available discounts taken by the buyer for early payment of an invoice are termed sales discounts by the seller. a. true b. false Q81. Under the perpetual inventory system, the cost of merchandise sold is recorded when sales are made. a. true b. false Q82. Inventory NOT sold at the end of the period is reported as a. cost of goods sold. b. old stock. c. merchandise inventory. d. net purchases. Q83. Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a(n): a. decrease in Bank Credit Card Sales, increase in Credit Card Expense, and increase in Sales. b. increase in Cash and increase in Sales. c. increase in Cash, decrease in Credit Card Expense, and increase in Sales. d. decrease in Sales, increase in Credit Card Expense, and decrease in Cash. Q84. On the income statement, sales discounts are normally deducted from sales to yield the cost of merchandise sold. a. true b. false Q85. Expenses that CANNOT be traced directly to operations are identified as a. other income. b. operating expenses. c. cost of goods sold. d. other expenses. Q86. If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are a. consigned. b. n/30. c. FOB shipping point. d. FOB destination. Q87. Gross profit is determined by subtracting the cost of merchandise sold from what? a. The cost of merchandise purchased b. Fees earned c. Accounts receivable d. Net sales Q88. On the income statement, sales returns and allowances and sales discounts are added to gross sales to yield net sales. a. true b. false Q89. The indirect method of preparing the statement of cash flows reconciles net income with net cash flows from operating activities. a. true b. false Q90. Sales Returns and Allowances is a contra-asset account. a. true b. false Q91. The sales discount account is a contra account to Sales. a. true b. false Q92. A sale of $600 on account subject to a sales tax of 5% would increase account receivable by $570. a. true b. false Q93. If the seller is to pay the delivery expense of delivering merchandise, the delivery terms are stated as a. FOB shipping point. b. FOB destination. c. FOB n/30. d. FOB seller. Q94. What is subtracted from sales to arrive at net sales? a. Sales returns and allowances b. Sales discounts c. Both sales discounts and sales returns and allowances d. Neither sales discounts nor sales returns and allowances Q95. A sales invoice included the following information: merchandise price, $5,000; terms 1/10, n/eom. Assuming that a credit for merchandise returned of $600 is granted prior to payment, and that the invoice is paid within the discount period, what is the amount of cash received by the seller? a. $4,656 b. $4,400 c. $4,356 d. $4,950 Q96. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are a. n/30. b. FOB shipping point. c. FOB destination. d. consigned. Q97. Where are selling and administrative expenses found on the multi-step income statement? a. Before gross profit b. After sales and before gross profit c. After net income and before expenses d. After gross profit Q98. Multiple-step income statements show a. gross profit but not net income. b. neither gross profit nor net income. c. gross profit but not cost of merchandise sold. d. gross profit, cost of merchandise sold, income from operations and net income. Q99. Orange Co. sells merchandise on credit to Zea Co. in the amount of $9,000. The invoice is dated on September 15 with terms of 1/15, net 45. What is the amount of the discount, and up to what date must the invoice be paid in order for the buyer to take advantage of the discount? a. $180, September 30 b. $180, September 25 c. $90, September 30 d. $90, September 25 Q100. Cost of Merchandise Sold is used in accounting for transactions by sellers of merchandise. a. true b. false