Q1. Over 90% of the total dollars of business receipts are received by proprietorships. a. true b. false Q2. Assets are acquired through investing activities when resources are purchased. a. true b. false Q3. A note payable requires payment of the amount borrowed plus a. interest. b. cash. c. accounts payable. d. investments. Q4. A limited liability corporation combines attributes of a partnership and a corporation. a. true b. false Q5. Merchandising businesses produce products rather than provide services to customers. a. true b. false Q6. Manufacturing businesses change basic inputs into products that are sold to individual customers. a. true b. false Q7. Merchandising businesses must be corporations. a. true b. false Q8. The basic type of stock issued to owners is called common stock. a. true b. false Q9. Who has first preference to assets in case a business fails? a. Stockholders b. Long-term creditors c. Customers d. Employees Q10. What is the primary objective of most businesses? a. To maximize profits b. To pay dividends to stockholders c. To provide a benefit to society d. To manufacture a quality product Q11. Expressing financial data as if a business will continue operating for an indefinite period time refers to which concept? a. Business entity concept b. Going concern concept c. Objectivity concept d. Adequate disclosure concept Q12. 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 Q13. A partnership is owned by two or more individuals. a. true b. false Q14. Shares of ownership are evidenced by issuing a. bonds payable. b. commercial paper. c. shares of stock. d. notes payable. Q15. Capital market stakeholders have an interest in the company because a. they provide incentives for the company to market their products. b. they are part of the Marketing Department that is responsible for promoting the products or services to increase the business profits. c. they help market their products to customers or find vendors to supply needed inputs. d. they provide major financing for the business. Q16. The debt created by a business when it makes a purchase on account is referred to as an a. account payable. b. account receivable. c. asset. d. expense payable. Q17. When a business borrows money, it incurs a(n) a. tax. b. liability. c. receivable. d. additional equity. Q18. Which of the items below is NOTa business organization form? a. Venture entrepreneurship b. Proprietorship c. Partnership d. Corporation Q19. When a product is sold, this cost is often called a. cost of goods sold. b. revenue. c. products. d. retained earnings. Q20. The popularity of the sole proprietorship is due to the ease and low cost of organizing. a. true b. false Q21. Stockholders in a corporation are internal stakeholders. 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. Which of the following is an example of an intangible asset? a. Patent b. Cash c. Land d. Equipment Q24. The Balance Sheet represents the accounting equation. a. true b. false Q25. Given the following list of accounts, calculate Total Assets:

Accounts Receivable	5,000
Capital Stock	20,000
Cash	19,300
Equipment	15,400
Fees Earned	44,400
Miscellaneous Expense	18,200
Rent Expense	4,150
Retained Earnings	6,550
Wages Expense	13,900

a. $84,100 b. $59,700 c. $46,250 d. $39,700 Q26. 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. Q27. Philip Corporation purchased equipment on account. What is the effect of this transaction? a. Cash will decrease and equipment will increase. b. Total assets will remain unchanged. c. Cash flow from Investing Activities will decrease. d. Total assets and total liabilities will both increase. Q28. Expenses can be defined as a. assets consumed. b. services used in the process of generating revenues. c. costs that have been incurred during the normal course of business. d. all of these. Q29. 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. Q30. 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. Q31. A transaction can affect at most two elements of the accounting equation. a. true b. false Q32. 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. Q33. 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 Q34. Buying equipment for cash affects which accounts? a. Cash only b. Retained earnings only c. Equipment and retained earnings d. Cash and equipment Q35. Any given transaction must affect at least two different parts of the accounting equation. a. true b. false Q36. Retained earnings will be increased by the amount in the dividend account. a. true b. false Q37. 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. Q38. Declaring and paying cash dividends affects which accounts? a. Cash only b. Capital stock only c. Cash and retained earnings d. Cash and capital stock 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. 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 Q42. 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 Q43. It is possible for a transaction to change the makeup of assets, but to NOT affect assets in total. a. true b. false Q44. The accounting equation can be expressed: Assets - Liabilities = Revenues. a. true b. false Q45. 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 Q46. The effect of every transaction is an increase or a decrease in one or more of the accounting equation elements. a. true b. false Q47. Dividends are an example of an expense. a. true b. false Q48. 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 Q49. 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 Q50. Johnson, Inc. issued $15,000 in capital stock in exchange for cash. 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. Total Retained Earnings will increase. Q51. Physical assets of a long-term nature are referred to as fixed assets. a. true b. false Q52. The accrual basis of accounting recognizes a. revenues when cash is received and expenses when cash is paid. b. revenues when earned and expenses when cash is paid. c. revenues when cash is received and expenses when incurred. d. revenues when earned and expenses when incurred. Q53. Accrued expenses are ordinarily reported on the balance sheet as a. assets. b. liabilities. c. fixed assets. d. prepaid expenses. Q54. Which transaction would be recorded in a cash basis system of accounting? a. Purchase of equipment on credit b. Purchase of supplies on credit c. Sale of goods on credit d. Sale of goods for cash Q55. The process that begins with the analysis of transactions and ends with preparing the accounting records for the next accounting period is called the accounting cycle. a. true b. false Q56. Every company must use the cash basis of accounting. a. true b. false Q57. 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. Q58. To determine cash payments for operating expenses for the cash flow statement using the direct method, depreciation expense is added to net income. a. true b. false Q59. The fixed asset section of a balance sheet may also be labeled as property, plant, and equipment. a. true b. false Q60. A&M Co. purchased land for $50,000 with $10,000 paid in cash and $40,000 in a note payable due three years from now. What effect does this transaction have on the accounts under the accrual basis of accounting? a. Net increase in assets of $40,000 and a net increase in liabilities of $40,000 b. Net increase in assets and liabilities of $50,000 c. Net increase in assets of $50,000 and a net decrease in liabilities of $40,000 d. Net increase in assets of $60,000 and a net decrease in liabilities of $40,000 Q61. Fees receivable would appear on the balance sheet as a(n) a. asset. b. liability. c. fixed asset. d. unearned revenue. Q62. 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 Q63. Expenses on the income statement are assets used up or services consumed in the process of generating revenues. a. true b. false Q64. Using accrual accounting, revenue is recorded and reported only a. when cash is received without regard to when the services are rendered. b. when the services are rendered without regard to when cash is received. c. when cash is received at the time services are rendered. d. if cash is received after the services are rendered. Q65. Which of the following accounts would likely be included in a deferral adjusting entry? a. Interest Revenue b. Unearned Revenue c. Salaries Payable d. Accounts Receivable Q66. The unearned rent account has a balance of $50,000. If $3,000 of the $50,000 is unearned at the end of the accounting period, the amount of the adjusting entry is a. $47,000. b. $53,000. c. $50,000. d. $3,000. Q67. Cash receipts from interest and dividends are classified as a. investing activities. b. operating activities. c. either financing or investing activities. d. financing activities. Q68. Deferred revenues (unearned revenues) are items initially recorded as liabilities, but expected to become _____ over time. a. liabilities b. assets c. revenues d. expenses Q69. Which asset is NOT depreciated as it usually does NOT lose its ability to provide service? a. Prepaid insurance b. Equipment c. Building d. Land Q70. 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. Q71. The _____ is prepared with various sections, subsections, and captions that aid in its interpretation and analysis. a. accounting equation b. retained earnings statement c. intangible asset section d. classified balance sheet 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. Accrual accounting does NOT require that the accounting records be updated prior to preparing financial statements. a. true b. false Q74. Which of the following is an example of a deferred expense? a. Prepaid advertising b. Unearned revenue c. Accounts payable d. Accounts receivable Q75. 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. Q76. Under the indirect method for preparing the statement of cash flows, increases in current liabilities are _____ net income in the cash flows from operating activities section. a. subtracted from b. added to c. not used when calculating d. cannot tell from the information given Q77. Inventory shortage is recorded when a. merchandise is returned by a buyer. b. merchandise purchased from a seller is incomplete or short. c. merchandise is returned to a seller. d. there is a difference between a physical count of inventory and inventory records. Q78. When merchandise is purchased to resell to customers, it is recorded in the account entitled a. Supplies. b. Cost of Goods Sold. c. Merchandise Inventory. d. Sales. Q79. If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by issuing a a. sales invoice. b. purchase invoice. c. credit memorandum. d. debit memorandum. Q80. On the income statement, sales returns and allowances and sales discounts are added to gross sales to yield net sales. a. true b. false Q81. Gold Co. sold merchandise to Bronze Co. on account, $25,000, terms 2/15, net 45. The cost of the merchandise sold is $18,500. Gold Co. issued a credit memorandum for $2,500 for merchandise returned that originally cost $1,900. Bronze Co. paid the invoice within the discount period. What is amount ofnet salesfrom the transactions? a. $22,500 b. $22,000 c. $5,450 d. $22,050 Q82. The indirect method of preparing the statement of cash flows reconciles net income with net cash flows from operating activities. a. true b. false Q83. 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 Q84. If the buyer is to pay the delivery expense of delivering merchandise, delivery terms are stated as a. FOB shipping point. b. FOB destination. c. FOB n/30. d. FOB buyer. 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. 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 Q87. When merchandise that was sold is returned, the seller decreases accounts payable. a. true b. false Q88. Using the indirect method for preparing the statement of cash flows, what is the net cash flow from operating activities if net income is $39,000; depreciation expense is $9,000; and the decrease in accounts payable is $5,000. a. $48,000 b. $53,000 c. $35,000 d. $43,000 Q89. Sales returns are granted by the seller to customers for damaged or defective merchandise. a. true b. false Q90. If merchandise costing $2,500, terms FOB destination, 2/10, n/30, with prepaid transportation costs of $100, is paid within 10 days, the amount of the purchases discount is $48. a. true b. false Q91. If a $20,000 sale is made on January 1, with terms of 2/10, n/30, how much would the discount be if payment is made on January 9? a. $0 b. $200 c. $1,000 d. $400 Q92. 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 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. Discounts taken by the buyer for early payment of an invoice are called purchases discounts by the buyer. a. true b. false Q95. Which financial statement reconciles net income with net cash flows from operating activities? a. Balance sheet b. Statement of retained earnings c. Statement of cash flows d. Income statement Q96. When the perpetual inventory system is used, the inventory sold is shown on the income statement as a. cost of merchandise sold. b. purchases. c. purchases returns and allowances. d. net purchases. Q97. What is the term applied to the excess of net revenue from sales over the cost of merchandise sold? a. Gross profit b. Income from operations c. Net income d. Gross sales Q98. Which term indicates that merchandise is free of transportation charges to the buyer? a. FOB destination b. Transportation out c. FOB shipping point d. Transportation in Q99. There are two alternatives to reporting cash flows from operating activities in the statement of cash flows: (1) the direct method and (2) the indirect method. a. true b. false Q100. Sometimes a(n) _____ is offered to buyers as a means of encouraging them to pay before the end of the credit period. a. accounts receivable b. credit card c. sales discount d. cash sale