QUESTION 2

1.Which of the following characteristics correctly describes balance sheets prepared in accordance with generally accepted accounting principles?

a.

There's a tendency to be conservative in the reporting of asset values.

b.

Managerial judgment does not play a role in the determination of the numbers reported on the balance sheet.

c.

All assets on the balance sheet are stated at their current values.

d.

All of the above.

QUESTION 3

1.If a transaction results in a firm's shareholders' equity being credited, then its net assets

a.

increase

b.

decrease

c.

may increase or decrease

d.

do not change

QUESTION 4

1.Which of the following would be classified as assets on a firm's balance sheet?

a.

12 months of rent paid in advance for property that the firm is using.

b.

Cash proceeds from a bank loan that the firm has taken out.

c.

Equipment that the firm has purchased but has not yet paid for.

d.

All of the above.

QUESTION 5

1.Which of the following events results in the recognition of expenses by a firm?

a.

The firm purchases some inventory that it will later sell to customers.

b.

The firm prepays 12 months' rent on office space.

c.

The firm sells inventory to customers.

d.

All of the above.

QUESTION 6

1.Which of the following characteristics correctly describes income statements prepared in accordance with generally accepted accounting principles?

a.

When the market value of an asset, such as land or inventory, goes up, income is recognized.

b.

Every firm has the choice of using either the cash basis or the accrual basis of accounting to recognize revenues and expenses.

c.

The accrual basis of accounting must be used to recognize revenues and expenses.

d.

None of the above.

QUESTION 7

1.Which of the following are not liabilities?

a.

Wages earned by workers but not yet paid

b.

Prepaid rent on office space

c.

Amounts due on inventory that has been purchased but not yet paid for

d.

All of the above

QUESTION 8

1.If a firm enters into a transaction that involve s an asset being credited for $100 and a liability being debited for $100, by how much does its net assets change?

a.

they increase by $100

b.

they decrease by $100

c.

they decrease by $200

d.

they do not change

QUESTION 9

1.A firm's net cash flow for the year

a.

is always equal to its net income for the year

b.

is always greater than its net income for the year

c.

is always less than its net income for the year

d.

may be greater or less than its net income for the year

QUESTION 10

1.If a firm purchases a piece of land for $100,000 and its market value rises to $160,000, this causes:

a.

the firm's net assets to increase by $60,000

b.

No change will occur in net assets

c.

the firm's shareholders' equity to increase by $60,000

d.

both (a) and (c)

QUESTION 11

1.Which of the following characterizes the relation between the balance sheet and the income statement?

a.

Expenses cause shareholders' equity to go down.

b.

Revenues cause shareholders' equity to go up.

c.

Revenues minus expenses equals the amount that retained earnings increases as a result of the firm's operations.

d.

All of the above.

QUESTION 12

1.Which of the following are not assets?

a.

Income taxes that the firm owes, but has not yet paid.

b.

Equipment that has been purchased and paid for.

c.

Inventory that has been purchased but not yet paid for.

d.

Neither (a) nor (c) are assets.

QUESTION 13

1.Which of the following cash flows is considered a cash flow from investing activities?

a.

Payment for the purchase of office supplies.

b.

Receipt of cash from a bank loan.

c.

Payment to purchase land for future use.

d.

All of the above.

QUESTION 14

1.Which of the following transactions results in an increase in a firm's total assets?

a.

A purchase of inventory that is paid for immediately with cash.

b.

Collections from customers for purchases previously made on account.

c.

Payment for supplies that had been previously purchased on account.

d.

None of the above.

QUESTION 15

1.If a firm's revenues are equal to $50,000 and its net income is equal to $5,000, its expenses must equal

a.

$5,000.00

b.

$45,000.00

c.

$50,000.00

d.

It depends on whether the revenues were all collected in cash during the year.

QUESTION 16

1.The accrual basis of accounting is superior to cash basis accounting because

a.

revenues should not be recognized until cash is collected

b.

expenses are matched in time with the revenues to which they are associated, resulting in a more informative income statement.

c.

a firm needs to be able to generate positive net cash flows in order to survive.

d.

All of the above.

QUESTION 17

1.Which of the following situations can contribute to a firm having a net cash flow that is higher than the profit it reports on its income statement?

a.

The firm takes out a bank loan.

b.

The firm purchases and pays for a new piece of machinery.

c.

The firm collects less from customers than it recognizes as revenues.

d.

None of the above.

QUESTION 18

1.If a firm enters into a transaction that involves an asset being debited for $100 and a liability being credited for $100, by how much does its net assets change?

a.

they increase by $100

b.

they decrease by $100

c.

they increase by $200

d.

they do not change

QUESTION 19

1.If a firm's assets total $100,000 and its liabilities total $70,000, the shareholders' equity on its balance sheet must total

a.

$70,000.00

b.

$30,000.00

c.

$100,000.00

d.

It depends on the firm's net income over the last year.

QUESTION 20

1.Which of the following are correct descriptions of liabilities that are recognized on the balance sheet?

a.

They represent amounts contributed by the firm's shareholders.

b.

They arise when goods or services have been received, but not yet paid for.

c.

They are valued at the amount due, regardless of when the liability will be paid.

d.

None of the above.

QUESTION 21

1.If a firm's assets total $10,000 and its shareholders' equity totals $8,000, the liabilities on its balance sheet must total

a.

$2,000.00

b.

$10,000.00

c.

It depends on whether the firm's liabilities are due within the next year.

d.

$8,000.00

QUESTION 22

1.A statement of cash flows is useful because

a.

a firm's net income over a given period of time need not equal its cash flow over that time.

b.

a firm can only survive if it generates sufficient cash flows.

c.

it's important to know how much of the firm's cash is coming from operating activities, investing activities, and financing activities.

d.

All of the above.

QUESTION 23

1.Which of the following cash flows is considered to be part of the firm's cash flow from financing activities?

a.

Payment for inventory purchases.

b.

Payment for the purchase of equipment.

c.

Repayment of a bank loan.

d.

Collections from customers.

QUESTION 24

1.Which of the following results in the recognition of expenses by a firm?

a.

The firm pays employees for work they did last year.

b.

The firm purchases some inventory that it will later sell to customers.

c.

The firm uses up office supplies that it had already purchased.

d.

None of the above.

QUESTION 25

1.Which of the following items are classified as assets on a firm's balance sheet?

a.

Patents and other intangible assets that the firm develops itself.

b.

Patents and other intangible assets that the firm purchases from another company.

c.

Expected future expenditures to clean up pollution that the firm has caused.

d.

None of the above.

QUESTION 26

1.Which of the following cash flows is considered a cash flow from operating activities?

a.

Contributions from shareholders.

b.

Payment for wages earned by employees.

c.

Payment for the purchase of a building.

d.

None of the above.

QUESTION 27

1.If a firm has revenues of $500 for the year and expenses of $200, what must be the change in its net assets during the year due to its operating activities?

a.

a decrease of $300

b.

an increase of $300

c.

an increase of $500

d.

a decrease of $200

QUESTION 28

1.Which of the following correctly characterizes assets listed on the balance sheet?

a.

Nonmonetary assets are never reported on the balance sheet at a value above their acquisition cost.

b.

Monetary assets are generally measured on the balance sheet at their current cash value.

c.

Monetary assets that will not be collected in cash for at least one year from the balance sheet date are reported at their present value.

d.

All of the above.

QUESTION 29

1.Which of the following situations can contribute to a firm having a net cash outflow at the same time that it reports a profit?

a.

The firm repays a bank loan it had previously taken out.

b.

The firm purchases less inventory than it sells.

c.

The firm's sales are always made for cash, never on credit.

d.

None of the above.

QUESTION 30

1.Which of the following transactions affect cash flow from operations?

a.

Purchasing office supplies on account.

b.

Selling inventory that has already been paid for.

c.

Paying workers for work already done.

d.

All of the above.

QUESTION 31

1.Which of the following results in the recognition of revenues by a firm?

a.

The firm takes out a bank loan.

b.

Shareholders contribute additional cash to the firm.

c.

The firm collects money from customers for purchases they had previously made on account.

d.

None of the above.

QUESTION 32

1.Which of the following situations results in an increase in a firm's total assets?

a.

The firm collects cash from some customers to whom it previously made sales.

b.

The firm's shareholders contribute additional cash to the firm.

c.

The firm pays for one year of rent in advance on its warehouse space.

d.

All of the above.

QUESTION 33

1.Under the accrual basis of accounting,

a.

expenses are recognized when creditors lend money to the firm.

b.

expenses incurred in the process of generating revenues are recognized at the same time as the revenues are recognized.

c.

revenues are recognized when shareholders contribute cash to the firm.

d.

All of the above.

QUESTION 34

1.Which of the following situations results in the recognition of revenues by a firm?

a.

The firm purchases some inventory that it will later sell to customers.

b.

The firm sells some inventory to customers, but does not yet collect any cash.

c.

The firm collects cash from some customers to whom it previously made sales.

d.

None of the above.

QUESTION 35

1.Which of the following are not liabilities?

a.

Payments due on land purchased.

b.

Payments due on wages earned but not yet paid for.

c.

Retained earnings.

d.

All of the above.