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Download the full file instantly at http://testbankinstant.com Chapter 1—The Role of Accounting in Business True/False No. Obj. 1-1 1 1-1 2 1-1 3 1-1 4 1-1 5 1-1 6 1-1 7 Difficulty Easy Easy Easy Easy Easy Easy Easy 8 9 10 11 12 13 14 Obj. 1-1 1-1 1-1 1-1 1-1 1-1 1-1 Difficulty Easy Easy Easy Easy Easy Easy Easy No. 15 16 17 18 19 20 21 Obj. 1-1 1-2 1-2 1-2 1-2 1-4 1-5 Difficulty Easy Easy Easy Easy Easy Easy Easy No. 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 Obj. 1-2 1-2 1-2 1-2 1-2 1-2 1-2 1-2 1-2 1-2 1-2 1-2 1-2 1-3 1-3 1-3 1-4 1-4 1-4 Difficulty Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Moderate No. 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 Obj. 1-4 1-4 1-4 1-4 1-4 1-4 1-4 1-4 1-4 1-4 1-4 1-4 1-5 1-5 1-5 1-5 1-5 1-5 1-5 Difficulty Moderate Easy Difficult Easy Moderate Easy Difficult Easy Easy Easy Difficult Difficult Easy Easy Easy Easy Easy Easy Easy Difficulty Easy Moderate Moderate Easy Easy Easy Easy Difficult Difficult No. 10 11 12 13 14 15 16 17 Obj. 1-4 1-4 1-4 1-4 1-4 1-5 1-5 1-5 Multiple Choice No. Obj. Difficulty 1-1 Easy 1 1-1 Easy 2 1-1 Easy 3 1-1 Easy 4 1-1 Easy 5 1-1 Easy 6 1-1 Moderate 7 1-1 Easy 8 1-1 Easy 9 1-1 Easy 10 1-1 Easy 11 1-1 Easy 12 1-1 Easy 13 1-1 Easy 14 1-1 Easy 15 1-1 Moderate 16 1-1 Easy 17 1-1 Easy 18 1-1 Easy 19 Problems No. Obj. 1-1 1 1-1 2 1-1 3 1-1 4 1-1 5 1-3 6 1-4 7 1-4 8 1-4 9 No. Difficulty Difficult Moderate Difficult Difficult Difficult Moderate Difficult Difficult Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com TRUE/FALSE 1. The objective of most businesses is to maximize profits. ANS: T PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-1 2. A limited liability corporation combines attributes of a partnership and a corporation. ANS: T PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Business OBJ: 1-1 3. A partnership is owned by two or more individuals. ANS: T PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-1 4. Manufacturing businesses change basic inputs into products that are sold to individual customers. ANS: T PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-1 5. Merchandising businesses produce products rather than provide services to customers. ANS: F PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-1 6. A corporation is a business that is legally separate and distinct from its owners. ANS: T PTS: 1 DIF: Easy NAT: AACSB Analytic | AICPA BB-Industry OBJ: 1-1 7. The popularity of the sole proprietorship is due to the ease and low cost of organizing. ANS: T PTS: 0 DIF: Easy NAT: AACSB Analytic | AICPA BB-Industry OBJ: 1-1 8. Large corporations such as ExxonMobil and Walmart are organized as limited liability corporations. ANS: F PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-1 9. Over 90% of the total dollars of business receipts are received by proprietorships. ANS: F PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-1 10. Merchandising businesses must be corporations. ANS: F PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-1 Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com 11. Accounting is thought to be the "language of business" because business information is communicated to stakeholders. ANS: T PTS: 1 DIF: Easy NAT: AACSB Analytic | AICPA FN-Measurement OBJ: 1-1 12. Stockholders in a corporation are internal stakeholders. ANS: F PTS: 1 DIF: Easy NAT: AACSB Analytic | AICPA FN-Resource Management OBJ: 1-1 13. Porsche is an example of a business that uses a premium-price emphasis to attract customers. ANS: T PTS: 0 DIF: Easy NAT: AACSB Analytic | AICPA BB-Industry OBJ: 1-1 14. Companies using a low-cost emphasis provide products and services that compete on features other than price. ANS: F PTS: 0 DIF: Easy NAT: AACSB Analytic | AICPA BB-Industry OBJ: 1-1 15. A business stakeholder has an interest in the economic performance of a business. ANS: T PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-1 16. Creditors have preference to assets behind stockholders if a business fails. ANS: F PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-2 17. A liability is a legal obligation to repay the amount borrowed according to the terms of the borrowing agreement. ANS: T PTS: 0 DIF: Easy OBJ: 1-2 NAT: AACSB Reflective Thinking | AICPA BB-Resource Management 18. The basic type of stock issued to owners is called common stock. ANS: T PTS: 0 DIF: Easy OBJ: 1-2 NAT: AACSB Reflective Thinking | AICPA BB-Resource Management 19. Assets are acquired through investing activities when resources are purchased. ANS: T PTS: 0 DIF: Easy OBJ: 1-2 NAT: AACSB Reflective Thinking | AICPA BB-Resource Management 20. The Stockholders’ Equity of a company should equal the total of its Total Assets and Total Liabilities. ANS: F PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA FN-Measurement OBJ: 1-4 21. The Balance Sheet represents the accounting equation. ANS: T PTS: 1 DIF: Easy OBJ: 1-5 Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com NAT: AACSB Analytic | AICPA FN-Measurement Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com MULTIPLE CHOICE 1. 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 ANS: A PTS: 0 DIF: Easy NAT: AACSB Analytic | AICPA BB-Industry OBJ: 1-1 2. Which of the following would NOT be an example of a merchandising business? a. Ford Motor Company b. Safeway c. Barnes & Noble d. Starbucks ANS: A PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-1 3. Which of the items below is NOT a business organization form? a. Venture entrepreneurship b. Proprietorship c. Partnership d. Corporation ANS: A PTS: 1 DIF: Easy NAT: AACSB Analytic | AICPA BB-Industry OBJ: 1-1 4. More that 70% of businesses are organized as what type of business? a. Not-for-profit b. Corporation c. Partnership d. Sole proprietorship ANS: D PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-1 5. 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. ANS: D PTS: 1 DIF: Easy NAT: AACSB Analytic | AICPA BB-Industry OBJ: 1-1 6. Under a premium-price emphasis, a business designs products that possess __________ for which customers are willing to pay a premium price. a. unique attributes b. high costs c. competitive efficiencies d. longer warranties Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com ANS: A PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-1 Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com 7. Which of the following is NOT a characteristic of a cdorporation? a. Corporations are organized as a separate legal taxable entity. b. Ownership is divided into shares of stock. c. Corporations experience an ease in obtaining large amounts of resources by issuing stock. d. A corporation’s resources are limited to its individual owners’ resources. e. Corporations make up 20% of all businesses. ANS: D PTS: 1 DIF: Moderate NAT: AACSB Analytic | AICPA BB-Industry OBJ: 1-1 8. An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock is a a. proprietorship. b. corporation. c. partnership. d. governmental unit. ANS: B PTS: 1 DIF: Easy NAT: AACSB Analytic | AICPA BB-Industry OBJ: 1-1 9. A low-cost emphasis strives to provide a. no-frills, standardized products and services. b. products and services that provide unique market needs. c. products and services that provide prestige and image for customers. d. products and services that compete on features other than price. ANS: A PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-1 10. Which of the following businesses use a premium-price emphasis? a. Value City Furniture b. Abercrombie & Fitch c. Wal-Mart Supercenters d. Southwest Airlines ANS: B PTS: 0 DIF: Easy NAT: AACSB Analytic | AICPA BB-Industry OBJ: 1-1 11. 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 ANS: A PTS: 0 DIF: Easy NAT: AACSB Analytic | AICPA BB-Industry OBJ: 1-1 12. Which of the following are business stakeholders? a. Stockholders b. Suppliers c. Customers d. All of these ANS: D PTS: 0 DIF: Easy OBJ: 1-1 Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com NAT: AACSB Reflective Thinking | AICPA BB-Industry 13. The following are examples of internal stakeholders EXCEPT: a. managers. b. creditors. c. employees. d. All of these are internal stakeholders. ANS: B PTS: 1 DIF: Easy NAT: AACSB Analytic | AICPA BB-Industry OBJ: 1-1 14. Which of the following is NOT an example of a capital market stakeholder? a. Banks b. Owners c. Suppliers d. Stockholders ANS: C PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-1 15. Due to various fraudulent business practices and accounting coverups in the early 2000s, Congress enacted the Sarbanes-Oxley Act of 2002. The act was responsible for establishing a new oversight board for public accountants called the a. Generally Accepted Accounting Practices for Public Accountants Board. b. Public Company Accounting Oversight Board. c. Congressional Accounting Oversight Board. d. None are correct. ANS: B PTS: 1 DIF: Easy NAT: AACSB Ethics | AICPA BB-Legal OBJ: 1-1 16. 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. ANS: D PTS: 1 DIF: Moderate NAT: AACSB Analytic | AICPA BB-Industry OBJ: 1-1 17. Who has first preference to assets in case a business fails? a. Stockholders b. Long-term creditors c. Customers d. Employees ANS: B PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-1 18. Governments have an interest in the economic performance of business because of a. tax collections. b. community involvement from the business. c. business incentives. Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com d. all of these. ANS: A PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-1 Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com 19. Managers are evaluated primarily on the business's a. tax collections. b. growth. c. economic performance. d. all of these. ANS: C PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-1 20. Financing activities involve obtaining __________ to operate a business. a. products b. customers c. business incentives d. funds ANS: D PTS: 0 DIF: Easy OBJ: 1-2 NAT: AACSB Reflective Thinking | AICPA BB-Resource Management 21. When a business borrows money, it incurs a(n) a. tax. b. liability. c. receivable. d. addtional equity. ANS: B PTS: 0 DIF: Easy OBJ: 1-2 NAT: AACSB Reflective Thinking | AICPA BB-Resource Management 22. When a product is sold, this cost is often called a. cost of goods sold. b. revenue. c. products. d. retained earnings. ANS: A PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA FN-Measurement OBJ: 1-2 23. A note payable requires payment of the amount borrowed plus a. interest. b. cash. c. accounts payable. d. investments. ANS: A PTS: 0 DIF: Easy OBJ: 1-2 NAT: AACSB Reflective Thinking | AICPA BB-Resource Management 24. Shares of ownership are evidenced by issuing a. bonds payable. b. commercial paper. c. shares of stock. d. notes payable. ANS: C PTS: 0 DIF: Easy OBJ: 1-2 NAT: AACSB Reflective Thinking | AICPA BB-Resource Management Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com 25. The resources a business owns are called a. assets. b. liabilities. c. earnings. d. stockholders' equity. ANS: A PTS: 0 DIF: Easy OBJ: 1-2 NAT: AACSB Reflective Thinking | AICPA BB-Resource Management 26. The purchase of factory equipment would be an example of which type of business activity? a. Financing b. Investing c. Operating d. All of these ANS: B PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA FN-Measurement OBJ: 1-2 27. Which of the following is an example of an intangible asset? a. Patent b. Cash c. Land d. Equipment ANS: A PTS: 0 DIF: Easy OBJ: 1-2 NAT: AACSB Reflective Thinking | AICPA BB-Resource Management 28. Rights to payments from customers are a. liabilities. b. prepaid expenses. c. accounts receivable. d. accounts payable. ANS: C PTS: 0 DIF: Easy OBJ: 1-2 NAT: AACSB Reflective Thinking | AICPA BB-Resource Management 29. Which of the following is considered an asset until consumed? a. Accounts payable b. Prepaid expense c. Accounts receivable d. Stockholders' equity ANS: B PTS: 0 DIF: Easy OBJ: 1-2 NAT: AACSB Reflective Thinking | AICPA BB-Resource Management 30. __________ is the increase in assets from selling products and services. a. Revenue b. Liabilities c. Products d. Stockholders’ Equity ANS: A PTS: 0 DIF: Easy OBJ: 1-2 NAT: AACSB Reflective Thinking | AICPA BB-Resource Management Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com 31. Cash collected from sales during the normal course of business would be an example of which type of business activity? a. Operating b. Investing c. Financing d. None of these ANS: A PTS: 0 DIF: Easy NAT: AACSB Analytic | AICPA FN-Reporting OBJ: 1-2 32. Costs incurred in operating a business are also known as a. revenues. b. expenses. c. liabilities. d. dividends. ANS: B PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA FN-Measurement OBJ: 1-2 33. 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. ANS: A PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Industry OBJ: 1-3 34. Debts owed by a business are referred to as a. accounts receivable. b. equities. c. stockholders’ equity. d. liabilities. ANS: D PTS: 1 DIF: Easy NAT: AACSB Analytic | AICPA FN-Measurement OBJ: 1-3 35. Reporting the financial condition of a business at a point in time and the changes in the financial condition of a business over a period of time are the two major objectives of a. tax accounting. b. union contracts. c. managerial accounting. d. financial accounting. ANS: D PTS: 0 DIF: Easy NAT: AACSB Analytic | AICPA FN-Reporting OBJ: 1-3 36. Which statement is normally prepared first? a. Income statement b. Balance sheet c. Statement of cash flows d. Retained earnings statement Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com ANS: A PTS: 0 DIF: Easy NAT: AACSB Analytic | AICPA FN-Reporting OBJ: 1-4 Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com 37. A summary of revenue and expenses for a specific period of time is a(n) a. income statement. b. balance sheet. c. statement of cash flows. d. retained earnings statement. ANS: A PTS: 0 DIF: Easy NAT: AACSB Analytic | AICPA FN-Reporting OBJ: 1-4 38. Gilbert, Inc. had the following account balances at September 30, 2010. What is Gilbert’s net income for the month of September? Accounts Payable Capital Stock Cash Equipment Fees Earned Miscellaneous Expense Rent Expense Retained Earnings Wages Expense a. b. c. d. $ 5,000 10,000 14,300 15,400 54,400 18,200 4,150 6,550 13,900 $32,450 $27,450 $6,550 $18,150 ANS: D PTS: 0 DIF: Moderate NAT: AACSB Analytic | AICPA FN-Reporting OBJ: 1-4 39. Browning, Inc. had revenues of $234,000, expenses of $175,000, and dividends of $30,000 during 2010. Which of the following statements is correct? a. Net income for 2010 totaled $29,000. b. Net income for 2010 totaled $59,000. c. Total retained earnings increased by $59,000 during 2010. d. Total retained earnings decreased by $30,000 during 2010. ANS: B PTS: 0 DIF: Moderate NAT: AACSB Analytic | AICPA FN-Reporting OBJ: 1-4 40. 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. ANS: D PTS: 0 DIF: Easy NAT: AACSB Analytic | AICPA FN-Reporting OBJ: 1-4 41. Heedy Company had the following account balances in 2010 and 2011, respectively. Assuming dividends of $20,000 were paid in 2011, how much was net income? Capital Stock 2011 $ 42,000 2010 $ 40,000 Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com a. b. c. d. Retained Earnings Total Stockholders’ Equity $62,000 $82,000 $272,000 $252,000 x $ 314,000 ANS: B PTS: 0 DIF: Difficult NAT: AACSB Analytic | AICPA FN-Reporting 210,000 $ 250,000 OBJ: 1-4 42. A list of assets, liabilities, and owners' equity as of a specific date is a(n) a. income statement. b. balance sheet. c. statement of cash flows. d. retained earnings statement. ANS: B PTS: 0 DIF: Easy NAT: AACSB Analytic | AICPA FN-Reporting OBJ: 1-4 43. Given the following list of accounts, calculate Total Assets: Accounts Receivable Capital Stock Cash Equipment Fees Earned Miscellaneous Expense Rent Expense Retained Earnings Wages Expense a. b. c. d. $ 5,000 20,000 19,300 15,400 44,400 18,200 4,150 6,550 13,900 $84,100 $59,700 $46,250 $39,700 ANS: D PTS: 0 DIF: Moderate NAT: AACSB Analytic | AICPA FN-Reporting OBJ: 1-4 44. Which of the following is an appropriate representation of the accounting equation? a. Assets + liabilities = stockholders’ equity b. Assets = liabilities + stockholders’ equity c. Assets = liabilities d. Assets = liabilities + retained earnings ANS: B PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA FN-Reporting OBJ: 1-4 45. Use the following information to determine Total Stockholders’ Equity: Total Assets Total Liabilities Total Stockholders’ Equity $ 50,000 $ 15,000 x Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com Total Retained Earnings a. b. c. d. $ 13,000 $52,000 $50,000 $35,000 $22,000 ANS: C PTS: 0 DIF: Difficult NAT: AACSB Analytic | AICPA FN-Reporting OBJ: 1-4 46. 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. ANS: C PTS: 0 DIF: Easy NAT: AACSB Analytic | AICPA FN-Reporting OBJ: 1-4 47. The portion of a corporation's net income retained in the business is called a. income statement. b. balance sheet. c. statement of cash flows. d. retained earnings. ANS: D PTS: 0 DIF: Easy NAT: AACSB Analytic | AICPA FN-Reporting OBJ: 1-4 48. 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. ANS: A PTS: 1 DIF: Easy NAT: AACSB Analytic | AICPA FN-Measurement OBJ: 1-4 49. If there was no beginning retained earnings, net income of $20,000, and ending retained earnings of $6,000, how much were dividends? a. $10,000 b. $4,000 c. $6,000 d. $14,000 ANS: D PTS: 0 DIF: Difficult NAT: AACSB Analytic | AICPA FN-Reporting OBJ: 1-4 50. During 2010, Smith Corporation had an increase in total assets of $70,000 and an increase in total liabilities of $90,000. Assuming that capital stock increased by $5,000 and no dividends were paid, calculate Smith’s net income or net loss for 2010. a. Net loss of $15,000 b. Net loss of $20,000 Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com c. Net loss of $25,000 d. Net income of $15,000 ANS: C PTS: 0 DIF: Difficult NAT: AACSB Analytic | AICPA FN-Reporting OBJ: 1-4 51. The "rules" of accounting are called a. income tax regulations. b. SEC regulations. c. Internet rules. d. Generally Accepted Accounting Principles. ANS: D PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA BB-Legal OBJ: 1-5 52. 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 ANS: A PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA FN-Measurement OBJ: 1-5 53. Recording revenue when a sale is made most directly relates to which concept? a. Going concern concept b. Periodicity concept c. Matching concept d. Adequate disclosure concept ANS: C PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA FN-Reporting OBJ: 1-5 54. 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 ANS: B PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA FN-Reporting OBJ: 1-5 55. 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. ANS: C PTS: 1 DIF: Easy NAT: AACSB Analytic | AICPA FN-Measurement OBJ: 1-5 Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com 56. 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 ANS: A PTS: 0 DIF: Easy NAT: AACSB Reflective Thinking | AICPA FN-Reporting OBJ: 1-5 Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com 57. Cash investments made by the stockholders of the business are reported on the statement of cash flows in the a. financing activities section. b. investing activities section. c. operating activities section. d. supplemental statement. ANS: A PTS: 1 DIF: Easy NAT: AACSB Analytic | AICPA FN-Measurement OBJ: 1-5 PROBLEM 1. Name the three different types of businesses that operate for profit and their respective characteristics. ANS: (1) Manufacturing: These businesses change basic inputs into products to sell to individual customers. (2) Merchandising: These businesses sell products to individual customers, but do not make the products. The products are purchased from other businesses and resold to customers. (3) Service: These businesses do not make or sell products. They provide services for fees. PTS: 0 DIF: Easy OBJ: 1-1 NAT: AACSB Reflective Thinking | AICPA BB-Industry 2. Name and describe the three forms of businesses and their advantages and disadvantages (if any). ANS: (1) Proprietorship: owned by one individual Advantages: ease and low cost of organizing Disadvantages: The financial resources available to this type of business are limited to the owners' resources and to borrowing. (2) Corporation: organized under state or federal statutes as a separate legal entity. Ownership is divided into shares of stock. Advantages: ability to obtain large amounts of resources by issuing stock (3) Partnership: owned by two or more individuals Disadvantages: may outgrow its ability to finance operations PTS: 0 DIF: Moderate OBJ: 1-1 NAT: AACSB Reflective Thinking | AICPA BB-Industry 3. For each of the following companies, identify whether it is a service, merchandising, or manufacturing business. A. Dillards B. Time Warner Cable C. Kohl’s D. Ford Motor Co. E. Applebee’s F. Sylvania G. Best Buy H. GAP Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com I. H & R Block A. B. C. D. E. F. G. H. I. Merchandising Service Merchandising Manufacturing Service Manufacturing Merchandising Merchandising Service ANS: PTS: 1 DIF: Moderate OBJ: 1-1 NAT: AACSB Analytic | AICPA FN-Measurement 4. How do businesses make money? What strategies can they use to gain competitive advantage? ANS: Businesses have the objective of making money by generating more revenues than costs. Businesses can seek competitive advantage by using a premium-price strategy or by using a low-cost strategy. A premium-price strategy tries to meet a unique market need based on quality, reliability, image, or design, allowing it to charge a higher price. A low-cost strategy focuses on efficiency in product design and production to offer a lower price due to lower costs. PTS: 0 DIF: Easy OBJ: 1-1 NAT: AACSB Reflective Thinking | AICPA BB-Industry 5. Describe business stakeholders and the four categories in which they can be classified. ANS: Business stakeholders are persons or entities that have an interest in the economic performance of a company. (1) Capital market stakeholder (2) Product/service stakeholder (3) Government stakeholder (4) Internal stakeholder PTS: 0 DIF: Easy OBJ: 1-1 NAT: AACSB Reflective Thinking | AICPA BB-Industry 6. Define accounting and its role in business. ANS: Accounting provides information for managers to use in operating the business. Accounting provides information to external stakeholders to use in assessing the economic performance and condition of the business. PTS: 0 DIF: Easy OBJ: 1-3 NAT: AACSB Reflective Thinking | AICPA BB-Industry Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com 7. What is the basic accounting equation, and which financial statement is prepared from this equation? ANS: Assets = Liabilities + Stockholders' Equity The Balance Sheet PTS: 0 DIF: Easy OBJ: 1-4 NAT: AACSB Reflective Thinking | AICPA FN-Reporting 8. Following are the financial statement data for Yevin Temporary Services at December 31, 2011. Prepare Yevin’s income statement. Accounts Payable Accounts Receivable Cash Common Stock Dividends Insurance Expense Office Equipment Retained Earnings, January 1, 2011 Salaries Expense Notes Payable Service Revenue Inventory Supplies Expense $ 610 600 300 625 100 60 1,000 300 550 35 1,500 20 40 Yevin Temporary Services Income Statement For the Year Ended December 31, 2011 Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com ANS: Yevin Temporary Services Income Statement For the Year Ended December 31, 2011 Revenues: Service Revenue Expenses: Salaries Expense Insurance Expense Supplies Expense Total Expenses Net income $1,500 $550 60 40 650 $ 850 PTS: 0 DIF: Difficult OBJ: 1-4 NAT: AACSB Analytic | AICPA FN-Reporting 9. Fill in the missing amounts of the following balance sheet: Bruce Company Balance Sheet December 31, 2010 Assets Cash Accounts Receivable Supplies Inventory Equipment Land Total Assets $ 3,600 2,700 a 5,000 7,500 9,300 $30,100 Liabilities Accounts Payable Notes Payable Total Liabilities Stockholders' Equity Common Stock Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity $ 700 b $c $19,500 3,300 ANS: a) $2,000 b) $6,600 c) $7,300 d) $30,100 PTS: 0 DIF: Difficult OBJ: 1-4 NAT: AACSB Analytic | AICPA FN-Reporting Download the full file instantly at http://testbankinstant.com $22,800 $d Download the full file instantly at http://testbankinstant.com 10. Three different companies--A, B, and C--have the same balance sheet at the beginning and end of a year. These are summarized below: Total Assets $ 500,000 $1,200,000 Beginning of the year End of the year Total Liabilities $250,000 $350,000 Given the data above and the additional information for each company below, determine the net income (loss) for each company. Company A Company B Company C No additional investment was made by stockholders, and no dividends were paid. Stockholders invested an additional $200,000, and no dividends were paid. Stockholders invested $450,000, and dividends of $50,000 were paid. ANS: Company A Company B Company C Net income $600,000 Net income $400,000 Net income $200,000 PTS: 0 DIF: Difficult OBJ: 1-4 NAT: AACSB Analytic | AICPA FN-Reporting 11. Classify the following as: a. Asset b. Liability c. Revenue d. Expense (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Unearned revenue Office equipment Wages payable Salary expense Dividends payable Art fees earned Prepaid rent Accounts receivable Income tax expense Office supplies ANS: (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) b a b d b c a a d a PTS: 0 DIF: Moderate OBJ: 1-4 Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com NAT: AACSB Reflective Thinking | AICPA FN-Reporting 12. Match the following items with the appropriate financial statement: a. Income statement b. Balance sheet c. Retained earnings statement d. Statement of cash flows (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) Cash Salary expense Unearned revenue Depreciation expense Capital stock Cash flows from operating activities Accounts receivable Beginning balance of retained earnings Notes payable Accounts payable Changes in current assets and current liabilities Total expenses ANS: (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) b a b a b d b c b b d a PTS: 0 DIF: Difficult OBJ: 1-4 NAT: AACSB Reflective Thinking | AICPA FN-Reporting Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com 13. Review Coke-Cola’s financial statements and answer the following questions: (1) How are Coke’s numbers reported (in what denomination)? (2) What is Coke’s net operating revenue for 2008? (3) What is Coke’s cost of goods sold for 2008? (4) What is Coke’s net income 2008? (5) What is Coke’s percent of interest expense to net operating revenue on its 2008 income statement? (6) What is Coke’s percent of increase in net operating revenue from 2007 to 2008? ANS: (1) (2) (3) (4) (5) (6) In millions of dollars $31,944,000,000 $11,374,000,000 $5,807,000,000 438/31,944 = 1.37% (31,944 - 28,857)/28,857 = 10.7% PTS: 0 DIF: Difficult OBJ: 1-4 NAT: AACSB Analytic | AICPA FN-Reporting Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com 14. Review Coke-Cola’s financial statements and answer the following questions: (1) What is Coke’s percent of current assets to total assets on its December 31, 2008 balance sheet? (2) What is Coke’s percentage of current liabilities to total stockholders’ equity on its December 31, 2008 balance sheet? Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com (3) (4) ANS: (1) (2) (3) (4) What is the percentage increase in cash and cash equivalents from 2007 to 2008? What percentage did total assets decrease from 2007 to 2008? 12,176/40,519 = 30.05% 12,988/20,472 = 63.44% (4,701 - 4,093)/4,093 = 14.85% (40,519 - 43,269)/43,269 = (6.36%) PTS: 0 DIF: Difficult OBJ: 1-4 NAT: AACSB Analytic | AICPA FN-Reporting 15. Match each statement with the appropriate accounting concept. (Some items may not be used. Others may be used more than once.) a. Accounting period b. Adequate disclosure c. Business entity d. Cost concept e. Going concern f. Matching g. Objectivity h. Unit of measure (1) (2) (3) (4) (5) (6) (7) (8) ANS: (1) (2) (3) (4) (5) (6) (7) (8) Owners’ transactions are separate from business transactions. Financial statements are prepared at the end of each year. Land purchased for $50,000 10 years ago is reported on the Balance Sheet at $50,000. December rent expense paid in January is reported with the December revenues. All transactions are recorded and reported in dollars. Providing a summary of significant accounting policies Assumes that IBM will continue as a corporation forever The length of time left on debt obligations is shown. c a d f h b e b PTS: 0 DIF: Moderate OBJ: 1-5 NAT: AACSB Reflective Thinking | AICPA FN-Reporting 16. Indicate whether each of the following activities would be reported on the Statement of Cash Flows as an Operating Activity, an Investing Activity, a Financing Activity, or does not appear on the Cash Flow Statement. (a) Cash paid for building (b) Cash paid to suppliers (c) Cash paid for dividends (d) Cash received from customers (e) Cash received from the sale of capital stock. Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com (f) (g) Cash received from the sale of a building Borrowed cash from a bank Download the full file instantly at http://testbankinstant.com Download the full file instantly at http://testbankinstant.com ANS: (a) Investing (b) Operating (c) Financing (d) Operating (e) Financing (f) Investing (g) Financing PTS: 1 DIF: Difficult OBJ: 1-5 NAT: AACSB Analytic | AICPA FN-Measurement 17. On May 31, 2010, Deana’s Services Company had account balances as follows: Accounts payable Accounts receivable Cash Fees earned Insurance expense Land Miscellaneous expense Prepaid insurance Rent expense Salary expense Dividends Supplies Supplies expense Utilities expense Capital stock Retained earnings (beginning balance on May 1, 2010) $ 9,900 26,950 11,390 70,800 1,475 74,400 1,510 2,000 8,000 35,300 15,100 950 825 3,800 81,000 20,000 Present, in good form, (a) an income statement for May, (b) a statement of retained earnings for May, and (c) a balance sheet as of May 31. ANS: (a) Deana’s Services Company Income Statement For the Month Ended May 31, 2010 Fees earned Operating expenses: Salary expense Rent expense Utilities expense Supplies expense Insurance expense Miscellaneous expense Total operating expenses Net income Download the full file instantly at http://testbankinstant.com $70,800 $35,300 8,000 3,800 825 1,475 1,510 50,910 $19,890 Download the full file instantly at http://testbankinstant.com (b) Deana’s Services Company Statement of Retained Earnings For the Month Ended May 31, 2010 Retained earnings, May 1, 2010 Net income for the month Subtotal Less dividends Retained earnings, May 31, 2010 $20,000 19,890 39,890 15,100 $24,790 (c) Assets Cash Accounts receivable Prepaid insurance Supplies Land Total assets Deana’s Services Company Balance Sheet May 31, 2010 Liabilities $ 11,390 Accounts payable 26,950 2,000 Stockholders' Equity 950 Capital stock 81,000 74,400 Retained earnings 24,790 Total stockholders’ equity Total liabilities and $115,690 stockholders' equity PTS: 1 DIF: Difficult OBJ: 1-5 NAT: AACSB Analytic | AICPA FN-Measurement Download the full file instantly at http://testbankinstant.com $ 9,900 105,790 $115,690