Question 1. Financing activities for corporations include borrowing money and selling shares of their own stock.
A.) True
B.) False
Question 2. Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.
A.) True
B.) False
Question 3. The statement of cash flows discloses significant events related to the operating, investing, and financing activities of a business.
A.) True
B.) False
Question 4. Under an effective system of internal control, errors occur only as a result of fraud or dishonesty.
A.) True
B.) False
Question 5. In horizontal analysis, the base year is the most current year being examined.
A.) True
B.) False
Question 6: The matching principle requires that efforts be related to accomplishments.
A.) True
B.) False
Question 7: All publicly traded U.S. companies must provide their shareholders with an annual report each year.
A.) True
B.) False
Question 8: Which of the following is not an advantage of the corporate form of business organization?
a. No personal liability
b. Easy to transfer ownership
c. Favorable tax treatment
d. Easy to raise funds
Question 9: Which of the following would be considered an "Other Comprehensive Income" item?
a. Net income
b. Gain on disposal of discontinued operations
c. Extraordinary loss related to flood
d. Unrealized loss on available-for-sale securities
Question 10: Incron Corporation began the year with retained earnings of $217,000. During the year, the company issued $294,000 of common stock, recorded expenses of $840,000, and paid dividends of $56,000. If Incron's ending retained earnings was $231,000, what was the company's revenue for the year?
a. $854,000
b. $910,000
c. $1,148,000
d. $1,204,000
Question 11: Javier's Tune-Up Shop follows the revenue recognition principle. Javier services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Javier on September 5. Javier receives the check in the mail on September 6. When should Javier show that the revenue was earned?
a. August 31
b. August 1
c. September 5
d. September 6
Question 12: In a small business, the lack of certain separations of duties can best be overcome by
a. bonding the employees.
b. getting the owner actively involved.
c. hiring only honest employees.
d. holding one person responsible for a given set of transactions.
Question 13: Long-term creditors are usually most interested in evaluating
a. liquidity and profitability.
b. consistency and profitability.
c. liquidity and solvency.
d. consistency and solvency.
Question 14: Accounting information should be verifiable in order to enhance
a. comparability.
b. reliability.
c. consistency.
d. relevance.
Question 15: If year one equals $800, year two equals $840, and year three equals $880, the percentage to be assigned for year three in a trend analysis, assuming that year 1 is the base year, is
a. 110%.
b. 105%.
c. 95%.
d. 100%.
Question 16: Which one of the following items would never appear on a cash budget?
a. Office salaries expense
b. Interest expense
c. Depreciation expense
d. Travel expense
Question 17: The going concern assumption underlies the
a. cost principle.
b. monetary unit assumption.
c. time period assumption.
d. full disclosure principle.
Question 18: Can financial statements be prepared directly from the adjusted trial balance?
a. They cannot. The general ledger must be used.
b. Yes, adjusting entries have been recorded in the general journal and posted to the ledger accounts.
c. No, the adjusted trial balance merely proves the equality of the total debit and total credit balances in the ledger after adjustments are posted. It has no other purpose.
d. They can because that is the only reason that an adjusted trial balance is prepared.
Question 19: Which of the following statements is true?
a. Publicly traded U.S. companies must provide an annual report to their shareholders when operating conditions change significantly.
b. An unqualified independent auditor's report must be included in the annual report.
c. Notes to the financial statements do not need to be included in the annual report because that information is only for internal users.
d. All of the statements are false.
Question 20: Employees at B Corporation are paid $5,000 cash every Friday for working Monday through Friday. The calendar year accounting period ends on Wednesday, December 31. How much salary expense should be recorded two days later on January 2?
a. $5,000
b. $3,000
c. None, matching requires the weekly salary to be accrued on December 31.
d. $2,000
Question 21: If a company has a current ratio of 1.2:1, what respective effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio?
Short-term Borrowing Collection of Receivable
a. Increase No effect
b. Increase Increase
c. Decrease No effect
d. Decrease Decrease
Question 22: Which of the following is an example of a bank reconciliation item that requires an adjusting entry?
a. NSF check
b. Deposit in transit
c. Bank error
d. None of these items requires an adjusting entry.
Question 23: If the average collection period is 55 days, what is the receivables turnover?
a. 6.64 times
b. 7.30 times
c. 3.65 times
d. None of the above
Question 24: Assets that are expected to be converted to cash or used in the business within a relatively short period of time are called _________ ________.
Question 25: The times interest earned ratio is calculated by dividing _______________ before __________________ and __________________ by interest expense.
Question 26: If the inventory turnover ratio is 5 times, and the average inventory was $600,000, the cost of goods sold during the year was $______________ and the average days to sell the inventory was ______________ days.
Question 27: The _____________ _______________ assumption states that the economic life of a business can be divided into artificial time periods.
Question 28: The claims of owners on the assets of a corporation are known as _____________ _______________.
Question 29: In a service company, revenue is earned when the service is __________.
Question 30: The principle of internal control that prevents one individual from being responsible for all the related activities of a given task is ____________ _____ _______________.
Question 31. Employees of a company who evaluate the effectiveness of the company's system of internal controls on a year-round basis are called __________ _____________.