No notes or any other papers are allowed during the examination You have exactly 75 minutes to complete the exam. Use your time wisely. Answer Questions on the Scantron Sheet Be sure to fill in your name and section on the scantron key. Make sure you mark (and bubble) the correct version number of the exam. Failure to do so will cost you the equivalent of 2 points. You may use a calculator (but NOT your mobile device) 7 T/F @ 1 point each, 44 MC @ 2 pts each, and 1 Short Answer 8 points (possible 105/100) 1. Accounting communicates financial information about a business to both internal and external users. A True B) False 2. The heading for the income statement might include the line "As of December 31, 20xx" A) True B) False 3. Solvency ratios measure the ability of a company to survive over a short period of time. A) True B) False 4. For information to be useful, it must be both relevant and faithfully representative. A) True B) False 5. A business organized as a separate legal entity owned by stockholders is a partnership. A True B) False 6. The journal is a chronological record of all transactions. A) True B) False REVIENT Beath 7. Cost constraint weighs the cost that companies incur to provide a type of information against its benefit to financial statement users. A) True B) False Version 1 Page 1 8. The proprietorship form of business organization A) is classified as a separate legal entity. B) must have at least two owners in most states C) generally receives favorable tax treatment relative to a corporation D) combines the records of the business with the personal records of the owner. 9. An advantage of the corporate form of business is that A) its ownership is easily transferable via the sale of shares of stock. B) it has limited life. C) it is simple to establish. D) its owner's personal resources are at stake. die 10. Borrowing money is an example of a(n) A) financing activity. B) investing activity. C) operating activity. D) delivering activity. und 11. The best definition of assets is the A) owners' investment in the business B) cash owned by the company. C) resources belonging to a company that have future benefit to the company. D) collections of resources belonging to the company and the claims on these resources, 12. Which of the following is an asset? A) Investments B) Common stock C) Retained earnings D) Mortgage payable 13. Which of the following is not a liability? A) Interest Payable B) Accounts Receivable C) Unearned Service Revenue D) Accounts Payable 14. Ending retained camings for a period is equal to beginning A) Retained earnings - Net income + Dividends B) Retained earnings + Net income + Dividends C) Retained earnings - Net income - Dividends D) Retained earnings + Net income - Dividends Version 1 Page 2 15. Dividends are reported on the A) balance sheet. B) income statement C) income statement and balance sheet. D) retained earnings statement 16. The financial statement that summarizes the changes in retained earnings for a specific period of time is the A) retained earnings statement. B) statement of cash flows. C) balance sheet. D) income statement. 17. Which of the following financial statements is concerned with the company at a point in time? A) Retained earnings statement B) Statement of cash flows C) Income statement D) Balance sheet 18. An income statement A) reports the changes in assets, liabilities, and stockholders' equity over a period of time. B) presents the revenues and expenses for a specific period of time. C) summarizes the changes in retained earnings for a specific period of time. D) reports the assets, liabilities, and stockholders' equity at a specific date. 19. Which financial statement is prepared first? A) Statement of cash flows B) Balance sheet C) Income statement D) Retained earnings statement 20. Henson Company began the year with retained earnings of $380,000. During the year. the company recorded revenues of $500,000, expenses of S380,000, and paid dividends of $40,000. What was Henson's retained earnings at the end of the year? A) $500,000 B) $540,000 C) $460,000 D) $840,000 21. Finney Company began the year by issuing 580,000 of common stock for cash. The company recorded revenues of $740,000, expenses of $640,000, and paid dividends of $40,000. What was Finney's net income for the year? A) $140,000 B) S180,000 C) $60,000 D) $100,000 22. A balance sheet shows A) assets, liabilities, and stockholders' equity. B) revenues, expenses, and dividends. C) revenues, liabilities, and stockholders' cquity. D) expenses, dividends, and stockholders' equity. 23. If total liabilities decreased by $105,000 and stockholders' equity decreased by $35,000 during a period of time, then total assets must change by what amount and direction during that same period? A) $70,000 increase B) $70,000 decrease C) $140,000 increase D) $140,000 decrease 24. Retained earnings is A) equal to cash B) the amount of net income kept in the corporation for future use. C) the stockholders' claim on total assets. D) equal to revenues. 25. An intangible asset A) is worthless because it has no physical substance. B) is converted into a tangible asset during the operating cycle. C) cannot be classified on the balance sheet because it lacks physical substance. D) derives its value from the rights and privileges it provides the owner. 26. Which of the following would not be classified as a long-term liability? A) Mortgage payable B) Lease liabilities C) Bonds payable D) Current maturities of long-term debt 27. Ratios that measure the income or operating success of a company for a given period of time are A) trending ratios. B) solvency ratios. C) liquidity ratios D) profitability ratios. Version 1 Page 4 28. The most important information needed to determine if companies can pay their current obligations is the A) relationship between current assets and current liabilities. B) relationship between short-term and long-term liabilities. C) projected net income for next year. D) net income for this year. 29. Working capital is A) used to evaluate a company's solvency and long-term debt paying ability. B) calculated by subtracting current assets from current liabilities. C) used to evaluate a company's liquidity and short-term debt paying ability. D) calculated by dividing current assets by current liabilities 30. Which one of the following is not an enhancing quality of useful information? A) Materiality B) Timeliness C) Comparability D) Understandability 31. The two fundamental qualities of useful information are A) understandability and consistency. B) relevance and faithful representation C) verifiability and timeliness. D) comparability and flexibility. 32. Characteristics associated with relevant accounting information are A) neutral and verifiable. B) comparability and timeliness C) consistency and understandability, D) predictive value and confirmatory value. 33. Characteristics associated with faithfully representative accounting information are A) verifiable and neutral. B) relevance and verifiable. C) verifiable and timely. D) complete and neutral. 34. The going concern assumption assumes that the business A) will be purchased by another business. B) will remain in operation for the foreseeable future. C) will be liquidated in the near future. D) is in a growth industry. Version 1 Page 5 35. Under IFRS and under GAAP, current assets are listed in IFRS GAAP a order of liquidity order of liquidity b. reverse order of liquidity order of liquidity c order of liquidity reverse order of liquidity d. reverse order of liquidity reverse order of liquidity 36. Collection of a $600 Accounts Receivable A) decreases an asset $600; decreases a liability $600. B) increases an asset $600; decreases an asset $600. C) increases an asset $600; decreases a liability $600. D) decreases a liability $600; increases stockholders' equity $600. 37. Courtney Company purchased equipment for $1,800 cash. As a result of this event, A) total assets remained unchanged. B) equity decreased by $1,800. C) assets increased by $1,800. D) Both assets and equity decreased by $1,800. 38. If a company issues common stock for $40,000 and uses $30,000 of the cash to purchase a truck, A) assets will be increased by S40,000 B) assets will be increased by $10,000. C) assets will be unchanged. D) equity will be reduced by S40,000. 39. On March 1, 2017, Freeze Company hires a new employee who will start to work on March 6. The employee will be paid on the last day of each month. Should a journal entry be made on March 6? Why or why not? A) No, the financial position of the company has been changed, however, the dollar amount of the transaction is not yet known. B) Yes, the company is now obligated to pay the employee, thus that event must be recorded. No, hiring an employee is an important event; however it is not an economic event that should be recorded. D) Yes, failure to record the event would cause the financial statements to be misleading 40. Which of the following items has no effect on retained earnings? A) Land purchase B) Expense C) Revenue D) Dividends Version 1 Page 6 41. Debits A) increase assets and decrease liabilities. B) decrease assets and increase liabilities. C) decrease both assets and liabilities. D) increase both assets and liabilities. 42. The normal balance of any account is the A) side which increases that account. B) side which decreases that account. C) right side D) left side. 43. The best interpretation of the word "credit" is the A) decrease side of an account. B) right side of an account. C) offset side of an account. D) increase side of an account. 44. Which accounts normally have credit balances? A) Revenues, liabilities, and assets B) Revenues, liabilities, and retained earnings C) Revenues, liabilities, and expenses D) Revenues, liabilities, and dividends 45. Transactions in a journal are initially recorded in A) dollar amount order. B) alphabetical order. C) chronological order. D) account number order. 46. Which accounts normally have debit balances? A) Assets, liabilities, and dividends B) Assets, expenses, and revenues C) Assets, expenses, and dividends D) Assets, expense, and retained earnings 47. An accountant has debited an asset account for $900 and credited a liability account for $600. What can be done to complete the recording of the transaction? A) Debit another asset account for $300. B) Nothing further must be done. C) Debit a stockholders' equity account for $300. D) Credit a different asset account for $300. Version 1 Page 7 No notes or any other papers are allowed during the examination You have exactly 75 minutes to complete the exam. Use your time wisely. Answer Questions on the Scantron Sheet Be sure to fill in your name and section on the scantron key. Make sure you mark (and bubble) the correct version number of the exam. Failure to do so will cost you the equivalent of 2 points. You may use a calculator (but NOT your mobile device) 7 T/F @ 1 point each, 44 MC @ 2 pts each, and 1 Short Answer 8 points (possible 105/100) 1. Accounting communicates financial information about a business to both internal and external users. A True B) False 2. The heading for the income statement might include the line "As of December 31, 20xx" A) True B) False 3. Solvency ratios measure the ability of a company to survive over a short period of time. A) True B) False 4. For information to be useful, it must be both relevant and faithfully representative. A) True B) False 5. A business organized as a separate legal entity owned by stockholders is a partnership. A True B) False 6. The journal is a chronological record of all transactions. A) True B) False REVIENT Beath 7. Cost constraint weighs the cost that companies incur to provide a type of information against its benefit to financial statement users. A) True B) False Version 1 Page 1 8. The proprietorship form of business organization A) is classified as a separate legal entity. B) must have at least two owners in most states C) generally receives favorable tax treatment relative to a corporation D) combines the records of the business with the personal records of the owner. 9. An advantage of the corporate form of business is that A) its ownership is easily transferable via the sale of shares of stock. B) it has limited life. C) it is simple to establish. D) its owner's personal resources are at stake. die 10. Borrowing money is an example of a(n) A) financing activity. B) investing activity. C) operating activity. D) delivering activity. und 11. The best definition of assets is the A) owners' investment in the business B) cash owned by the company. C) resources belonging to a company that have future benefit to the company. D) collections of resources belonging to the company and the claims on these resources, 12. Which of the following is an asset? A) Investments B) Common stock C) Retained earnings D) Mortgage payable 13. Which of the following is not a liability? A) Interest Payable B) Accounts Receivable C) Unearned Service Revenue D) Accounts Payable 14. Ending retained camings for a period is equal to beginning A) Retained earnings - Net income + Dividends B) Retained earnings + Net income + Dividends C) Retained earnings - Net income - Dividends D) Retained earnings + Net income - Dividends Version 1 Page 2 15. Dividends are reported on the A) balance sheet. B) income statement C) income statement and balance sheet. D) retained earnings statement 16. The financial statement that summarizes the changes in retained earnings for a specific period of time is the A) retained earnings statement. B) statement of cash flows. C) balance sheet. D) income statement. 17. Which of the following financial statements is concerned with the company at a point in time? A) Retained earnings statement B) Statement of cash flows C) Income statement D) Balance sheet 18. An income statement A) reports the changes in assets, liabilities, and stockholders' equity over a period of time. B) presents the revenues and expenses for a specific period of time. C) summarizes the changes in retained earnings for a specific period of time. D) reports the assets, liabilities, and stockholders' equity at a specific date. 19. Which financial statement is prepared first? A) Statement of cash flows B) Balance sheet C) Income statement D) Retained earnings statement 20. Henson Company began the year with retained earnings of $380,000. During the year. the company recorded revenues of $500,000, expenses of S380,000, and paid dividends of $40,000. What was Henson's retained earnings at the end of the year? A) $500,000 B) $540,000 C) $460,000 D) $840,000 21. Finney Company began the year by issuing 580,000 of common stock for cash. The company recorded revenues of $740,000, expenses of $640,000, and paid dividends of $40,000. What was Finney's net income for the year? A) $140,000 B) S180,000 C) $60,000 D) $100,000 22. A balance sheet shows A) assets, liabilities, and stockholders' equity. B) revenues, expenses, and dividends. C) revenues, liabilities, and stockholders' cquity. D) expenses, dividends, and stockholders' equity. 23. If total liabilities decreased by $105,000 and stockholders' equity decreased by $35,000 during a period of time, then total assets must change by what amount and direction during that same period? A) $70,000 increase B) $70,000 decrease C) $140,000 increase D) $140,000 decrease 24. Retained earnings is A) equal to cash B) the amount of net income kept in the corporation for future use. C) the stockholders' claim on total assets. D) equal to revenues. 25. An intangible asset A) is worthless because it has no physical substance. B) is converted into a tangible asset during the operating cycle. C) cannot be classified on the balance sheet because it lacks physical substance. D) derives its value from the rights and privileges it provides the owner. 26. Which of the following would not be classified as a long-term liability? A) Mortgage payable B) Lease liabilities C) Bonds payable D) Current maturities of long-term debt 27. Ratios that measure the income or operating success of a company for a given period of time are A) trending ratios. B) solvency ratios. C) liquidity ratios D) profitability ratios. Version 1 Page 4 28. The most important information needed to determine if companies can pay their current obligations is the A) relationship between current assets and current liabilities. B) relationship between short-term and long-term liabilities. C) projected net income for next year. D) net income for this year. 29. Working capital is A) used to evaluate a company's solvency and long-term debt paying ability. B) calculated by subtracting current assets from current liabilities. C) used to evaluate a company's liquidity and short-term debt paying ability. D) calculated by dividing current assets by current liabilities 30. Which one of the following is not an enhancing quality of useful information? A) Materiality B) Timeliness C) Comparability D) Understandability 31. The two fundamental qualities of useful information are A) understandability and consistency. B) relevance and faithful representation C) verifiability and timeliness. D) comparability and flexibility. 32. Characteristics associated with relevant accounting information are A) neutral and verifiable. B) comparability and timeliness C) consistency and understandability, D) predictive value and confirmatory value. 33. Characteristics associated with faithfully representative accounting information are A) verifiable and neutral. B) relevance and verifiable. C) verifiable and timely. D) complete and neutral. 34. The going concern assumption assumes that the business A) will be purchased by another business. B) will remain in operation for the foreseeable future. C) will be liquidated in the near future. D) is in a growth industry. Version 1 Page 5 35. Under IFRS and under GAAP, current assets are listed in IFRS GAAP a order of liquidity order of liquidity b. reverse order of liquidity order of liquidity c order of liquidity reverse order of liquidity d. reverse order of liquidity reverse order of liquidity 36. Collection of a $600 Accounts Receivable A) decreases an asset $600; decreases a liability $600. B) increases an asset $600; decreases an asset $600. C) increases an asset $600; decreases a liability $600. D) decreases a liability $600; increases stockholders' equity $600. 37. Courtney Company purchased equipment for $1,800 cash. As a result of this event, A) total assets remained unchanged. B) equity decreased by $1,800. C) assets increased by $1,800. D) Both assets and equity decreased by $1,800. 38. If a company issues common stock for $40,000 and uses $30,000 of the cash to purchase a truck, A) assets will be increased by S40,000 B) assets will be increased by $10,000. C) assets will be unchanged. D) equity will be reduced by S40,000. 39. On March 1, 2017, Freeze Company hires a new employee who will start to work on March 6. The employee will be paid on the last day of each month. Should a journal entry be made on March 6? Why or why not? A) No, the financial position of the company has been changed, however, the dollar amount of the transaction is not yet known. B) Yes, the company is now obligated to pay the employee, thus that event must be recorded. No, hiring an employee is an important event; however it is not an economic event that should be recorded. D) Yes, failure to record the event would cause the financial statements to be misleading 40. Which of the following items has no effect on retained earnings? A) Land purchase B) Expense C) Revenue D) Dividends Version 1 Page 6 41. Debits A) increase assets and decrease liabilities. B) decrease assets and increase liabilities. C) decrease both assets and liabilities. D) increase both assets and liabilities. 42. The normal balance of any account is the A) side which increases that account. B) side which decreases that account. C) right side D) left side. 43. The best interpretation of the word "credit" is the A) decrease side of an account. B) right side of an account. C) offset side of an account. D) increase side of an account. 44. Which accounts normally have credit balances? A) Revenues, liabilities, and assets B) Revenues, liabilities, and retained earnings C) Revenues, liabilities, and expenses D) Revenues, liabilities, and dividends 45. Transactions in a journal are initially recorded in A) dollar amount order. B) alphabetical order. C) chronological order. D) account number order. 46. Which accounts normally have debit balances? A) Assets, liabilities, and dividends B) Assets, expenses, and revenues C) Assets, expenses, and dividends D) Assets, expense, and retained earnings 47. An accountant has debited an asset account for $900 and credited a liability account for $600. What can be done to complete the recording of the transaction? A) Debit another asset account for $300. B) Nothing further must be done. C) Debit a stockholders' equity account for $300. D) Credit a different asset account for $300. 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