TRUE FALSE. Write T if the statement is true and F if the statement is false. 1) Accounting is the information system that measures business activities, processes the information into reports, and communicates the results to decision makers. 2) Accounting is referred to as the language of business because it is the method of communicating business information to decision makers. 3) A creditor is a person who owes money to the business. 4) Financial accounting focuses on information for decision makers outside of the business, such as creditors and taxing authorities. 5) Johnson Company purchased land for $30,000. The president of Johnson Company believes that the land is actually worth $35,000. The land can be recorded at $35,000. 6) Unearned revenue is a liability account. 7) The Public Company Accounting Oversight Board is a watchdog agency that monitors the work of independent accountants who audit public companies. 8) The Sarbanes-Oxley Act (SOX) requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports. 9) A payment of an expense in advance is called a prepaid expense. 10) For an accounting equation to balance, a transaction must affect both sides of the equation 11) The normal balance of an account is the increase side of the account. 12) A law firm provides legal services for clients who do not pay immediately. As a result of this transaction, assets and revenues increase. 13) The Dividends account is increased by a debit. 14) An accounting firm collected cash on account. As a result of this transaction, total assets, liabilities and equity are all unchanged. 15) The heading of a balance sheet will show the date as a specific date, not a period of time. 16) An account that normally has a debit balance may occasionally have a credit balance. 17) When a business records an accrued utility liability, the Utilities Expense account is credited 18) The statement of retained earnines informs users about how much of the earnings were kept and reinvested in the company. 19) If the total debits equal the total credits on the trial balance, the individual account balances will be error free. 2) The T-account is a summary device that is shaped like a capital T with debits posted on the right side of the vertical line and credits posted on the left side of the vertical line IPLE CHOICE. Choose the one alternative that best completes the statement or answer the question 21) - are professional accountants who serve the general public, not one particular company. A) Certified public accountants B) Audit accountants C) Certified financial accountants D) Controllers 22) Which of the following organizations is responsible for the creation and governance of accounting standards in the United States? A) Securities and Exchange Commission B) Financial Accounting Standards Board C) Institute of Management Accountants D) American Institute of Certified Public Accountants 2 23) GAAP refer to guidelines for accounting information in the United States. The acronym GAAP in this statement refers to A) Global Accommodation Accounting Principles B) Generally Accredited Accounting Policies ) Generally Accepted Accounting Principles D) Globally Accepted and Accurate Policies 2 24) Which of the following is a major reason why corporate ownership is popular in the United States? A) A corporation is usually managed by the owners. B) Stockholders have limited liability for the debts of the corporation C) The life of a corporation is limited by the death of the owner. D) Most corporations are small-or medium-sized. 25) The account title used for recording the payment of rent in advance for an office building is A) Prepaid Rent B) Rent Expense Rent Revenue D) Rent Payable 26) Which of the following is a characteristic of a corporation? A) Lenders of a corporation do not have the right to claim the corporation's assets to satisfy the obligations. B) Each stockholder has the authority to commit the corporation to a binding contract through his/her actions. C) A corporation is owned by stockholders. D) All shares of a corporation must be held by a single individual. 2 27) Regarding the separation of corporate ownership and management, which of the following is a true statement? A) None of the stockholders have the ability to manage the business of the corporation B) The corporate officers elect the board of directors. C) The corporation runs better with day-to-day input from stockholders. D) Stockholders own the business, but a board of directors appoints corporate officers to manage the business 28) Posting a transaction means A) calculating the balance in an account B) preparing a summary of account balances transferring data from the journal to the ledger D) finding the account number in the chart of accounts 29) Dividends is a(n) A) equity; credit account that has a normal B) equity: debit balance. C) liability, debit D) liability: credit 30) Corporations pay their own income tax on corporate income. Stockholders pay personal income tax on the dividends received from corporations. This is an example of A) double taxation B) continuous life C) a limited liability company D) no mutual agency 31) represents a debt owed for renting a building currently. A) Rent Expense B) Rent Payable Prepaid Rent D) Rent Revenue 32) David has decided to open an auto-detailing business. He will pick up an automobile from the client, take it to his parents' garage, detail it, and return it to the client. If he does all of the work himself and takes no legal steps to form a special organization, which type of business organization, in effect, has he chosen? A) A partnership B) A sole proprietorship C) A limited liability company D) A corporation 33) Which of the following is the correct formula to calculate the debt ratio? A) Debt ratio = Total liabilities Total assets B) Debt ratio = Total liabilities / Total assets Debt ratio Total liabilities - Total assets D ) Debt ratio = Total liabilities. Total assets 34) The Accounts Receivable account of Rosewood, Inc. has the following postings Accounts Receivable 21,000 2,000 2,000 Calculate the ending balance of the account A) $2,000 credit B) $23,000 debit C) $21,000 debit D) $25,000 debit 43) Merchant Corporation provides plumbing services. Transactions of Merchant during the first year of operations are given below. a) Received $12,000 cash and issued common stock to Sharon. b) Paid $1,600 cash for equipment to be used for plumbing repairs. c) Borrowed $14,000 from a local bank and deposited the money in the checking account. d) Paid $600 rent for the year. e) Purchased $200 of office supplies by cash. 1) Completed a plumbing repair project for a local lawyer and received $3,000 cash. Calculate the amount of total liabilities at the end of the first year. A) $12,000 B) $24.400 C) $3,000 D) $14,000 44) Glendale Corporation had the following transactions in August Eamed $5,000 of revenues on account: collected $5,000 from a customer for services provided last month; incurred $500 of repair expense and paid cash; paid $600 for rent that it owed from the previous month. What is the net income in August? A) $9,500 B) $4,500 C) $500 D) $5,000 45) The following are the current month's balances for Jackson, Inc. Accounts Payable Revenue Cash Expenses Furniture Accounts Receivable Common Stock Notes Payable $8,000 11,000 5,000 1.300 10,000 15.00 9.250 5,500 Calculate the total amount of credits for the trial balance. A) $33,750 B) $25,750 $24,500 D) $22,750 46) represent the right to receive cash in the future from customers for goods sold or for services performed. A) Expenses B) Equity Accounts Receivable D) Accounts Payable 47) represents a short-term liability created by purchasing on account." A) Accounts Receivable B) Accounts Payable C) Expenses D) Notes Payable 48) In a limited - liability company, the A) business pays income tax on earnings B) members are personally liable to pay the entity's debts C) members pay income tax on their share of earnings D) members are liable for each other's actions 49) Which of the following financial statements would be most useful if an analyst wants to know the likelihood of repayment of business debts? A) balance sheet B) statement of cash flows C) income statement D) statement of retained earnings 50) The retum on assets is calculated by A) multiplying net income and average total assets B) subtracting net income from average total assets C) dividing net income by average total assets D) adding net income and average total assets 51) Which of the following formulae is used to calculate average total assets for the return on assets ratio? A) Average total assets (Beginning total assets - Ending total assets)/2 B) Average total assets (Beginning total assets - Ending total assets) 2 C) Average total assets (Beginning total assets. Ending total assets)/2 D) Average total assets (Beginning total assets. Ending total assets) 2 52) Assume MetAmbit Corporation had a net income of $2.300 for the year ending December 2016. Its beginning and ending total assets were $33,500 and $18,000, respectively. Calculate MetAmbit's retum on assets (ROA). (Round your percentage answer to two decimal places.) A) 6.87% B) 4.47% 8.93% D) 12.78% 53) As per the the entity will remain in operation for the foreseeable future. A) economic entity concept B) cost principle going concern assumption D) monetary unit assumption 54) Which of the following organizations requires publicly owned companies to be audited by independent accountants (CPAs)? A) Financial Accounting Standards Board (FASB) B) Securities and Exchange Commission (SEC) C) American Institute of Certified Public Accountants (AICPA) D) Public Company Accounting Oversight Board (PCAOB) 55) The equity of Autumn Company is $160,000 and the total liabilities are $50,000. The total assets an A) $210,000 B) $110,000 C) $100,000 D) $320,000 56) Vista Camera Services started the year with total assets of $110,000 and total liabilities of $45,000. The revenues and the expenses for the year amounted to $120,000 and $90,000, respectively. Durin the year, the company did not issue any common stock, but it distributed dividends of $50.000, What is the amount of stockholders' equity at the end of the year? A) $120,000 B) $50,000 $90,000 D) $45,000 57) Which of the following is the final step in the joumalizing and posting process? A) Posting the accounts to the ledger. B) Identifying each account affected and its type. Determining whether each account has increased or decreased D) Determining whether the accounting equation is in balance 58) Which of the following sequences is the normal sequence of flow of accounting data? A) Source document - Ledger - Journal B) Source document - Journal - Ledger C) Joumal - Source document -Ledger D) Ledger - Journal --Source document 59) A business renders services to a client and issues a sales invoice. The amount will be collected from the customer at a later time. Which of the following is true at the time the invoice is issued? A) Total assets will decrease. B) Equity will decrease. C) Total liabilities will increase. D) Net income will increase. Ou The following transactions for the month of March have been journalized and posted to the proper accounts Mar. 1 The business received $9.000 cash and issued common stock to stockholders. Mar.2 Paid the first month's rent of $900. Mar. 3 Purchased equipment by paying $3,000 cash and executing a note payable for $7,000 Mar. 4 Purchased office supplies for $730 cash. Mar. 5 Billed a client for $10,000 of design services completed. Mar. 6 Received $7,900 on account for the services previously recorded What is the balance in Cash? A) $12,270 B) $13,170 C) $13,900 D) $15,270 61) The following transactions for the month of March have been journalized and posted to the proper accounts. Mar. 1 The business received $7,000 cash and issued common stock to stockholders. Mar.2 Paid the first month's rent of $500. Mar, 3 Purchased equipment by paying $2,000 cash and executing a note payable for $6,000. Mar. 4 Purchased office supplies for $700 cash. Mar. 5 Billed a client for $12,000 of design services completed. Mar. 6 Received $9,000 on account for the services previously recorded. What is the balance in Accounts Receivable? A) $9,000 B) $6,000 C) $3,000 D) $12,000 62) The following transactions for March have been joumalized and posted to the proper accounts. Mar 1 The business received $8,000 cash and issued common stock to stockholders. Mar.2 Paid the first month's rent of $600. Mar. 3 Purchased equipment by paying $1,000 cash and executing a note payable for $4,000. Mar.4 Purchased office supplies for $650 cash. Mar. 5 Billed a client for $13,000 of design services completed. Mar, 6 Received $7,000 on account for the services previously recorded. What is the ending balance in the Service Revenue account? A) $7,000 B) $13,000 C) $15,000 D) $8,000 63) Beetles, Inc. recorded the following journal entry on March 2, 2016. 4,500 [Cash Uneamed Revenue 4,500 From the journal entry above, identify the transaction on March 2, 2016, A) Beetles purchased goods worth $4,500 and signed a one-year note for the same. B) Beetles sold goods for $4,500 cash. Beetles paid $4,500 for services to be received at a later date. D) Beetles received $4,500 for services to be performed in a later period 64) An accounting entry that is characterized by having multiple debits and/or multiple crude called a _ _entry. A) chart of accounts B) balanced C) posted D) compound journal 65) Gatto Production Services started the year with total assets of $120,000 and total liabilities of $65,000. The revenues and the expenses for the year amounted to $110,000 and $50,000, respectively. During the year, the company did not issue any common stock, but it distributed dividends of $70,000. Calculate Gatto's net income for the year. A) $50,000 B) $120,000 C) $110,000 D) $60,000 66) York Casting Services started the year with total assets of $110,000 and total liabilities of $50,000. The revenues and the expenses for the year amounted to $140,000 and $50,000, respectively. During the year, the company did not issue any common stock, but it distributed dividends of $70,000. Calculate the amount of increase or decrease in stockholders' equity for the year. A) a $20,000 increase B) a $60,000 decrease C) a $70,000 increase D) a $80,000 increase 67) A business purchases equipment by paying $9.087 in cash and issuing a note payable of $13,264. Which of the following occurs? A) Cash is credited for $9,087, Equipment is credited for $22,351, and Notes Payable is debited for $13,264. B) Cash is debited for $9,087, Equipment is credited for $13,264, and Notes Payable is debited for $4,177. Cash is debited for $9,087, Equipment is debited for $13,264, and Notes Payable is credited for $22,351 D) Cash is credited for $9,087, Equipment is debited for $22,351, and Notes Payable is credited for $13,264. 68) The net income of Avid Camera Services is $20,000. The beginning and ending stockholders' equity balances were $36,000 and $54,000, respectively. The company issued no common stock. Calculate the amount of dividends. A) $2,000 B) $15,000 $16,000 D) $12,000 69) Which of the following statements best defines financial statements? A) Financial statements are documents that report on a business in monetary terms, providing information to help people make informed business decisions. B) Financial statements are plans and forecasts for future time periods based on information from past financial periods. C) Financial statements are the information systems that record monetary and nonmonetary business transactions. D) Financial statements are the verbal statements made to business news organizations by chief financial officers. 70) Which of the following is the correct order of preparation of financial statements? A) Balance sheet - income statement - statement of retained earnings - statement of cash flows B) Statement of retained earnings - balance sheet - income statement - statement of cash flows C) Income statement - statement of retained earnings - balance sheet -- statement of cash flows D) Balance sheet - statement of retained earnings - income statement - statement of cash flows 71) The total assets and the total liabilities of Smart Financial Services are shown below. The company issued no common stock and paid no dividends during the year. Beginning of year End of year Assets $405,000 455,000 Liabilities $270,000 300,000 What was the amount of net income for the year? A) $20,000 B) $30,000 C) $80,000 D) $50,000