MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) What is the primary purpose of the statement of financial position?
A) To measure the profit of a business up to a particular point in time.
B) To report assets at their current market value at a particular point in time.
C) To report the financial position of the reporting entity at a particular point in time.
D) To report the difference between cash inflows and cash outflows for the period.
Answer: C
2) On January 1, 20X1, two individuals invested $150,000 each to form Hornbeck Corporation.
Hornbeck had total revenues of $15,000 during 20X1 and $40,000 during 20X2. Total expenses for
the same periods were $8,000 and $22,000, respectively. Cash dividends paid out to shareholders
totaled $6,000 in 20X1 and $12,000 in 20X2. What was the ending balance in Hornbeck's retained
earnings account at the end of 20X1 and 20X2?
A) $1,000 and $6,000 respectively. B) $7,000 and $19,000 respectively.
C) $1,000 and $7,000, respectively. D) $301,000 and $306,000 respectively.
Answer: C
3) The BAT Corporation had revenues of $110,000, expenses of $85,000, and an income tax rate of 20
percent in 20X2. What would profit after taxes be?
A) $25,000. B) $15,000. C) $5,000. D) $20,000.
Answer: D
4) Brown Corporation reported the following amounts at the end of the first year of operations,
December 31, 20X1: Share capital $20,000; Sales revenue $95,000; Total assets $85,000, No
dividends, and Total liabilities $35,000. What would shareholders' equity and total expenses be?
A) Shareholders' equity, $80,000 and expenses $40,000.
B) Shareholders' equity, $80,000 and expenses $85,000.
C) Shareholders' equity, $50,000 and expenses $65,000.
D) Shareholders' equity, $60,000 and expenses $75,000.
Answer: C
5) Which of the following would not be considered an internal user of accounting data?
A) A creditor of a company. B) The controller of a company.
C) A salesperson of a company. D) The president of a company.
Answer: A
6) If total liabilities increased by $25,000 and shareholders' equity increased by $5,000 during a period,
then total assets must change by what amount and direction during that same period?
A) $20,000 decrease. B) $25,000 increase.
C) $30,000 increase. D) $20,000 increase.
Answer: C
7) Which of the following activities involves raising the necessary funds to support the business?
A) Operating. B) Marketing. C) Financing. D) Investing.
Answer: C
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, 8) Buying assets needed to operate a business is an example of a(n)
A) purchasing activity. B) investing activity.
C) operating activity. D) financing activity.
Answer: B
9) The common characteristic possessed by all assets is
A) tangible nature. B) long life.
C) great monetary value. D) future economic benefit.
Answer: D
10) Expenses are incurred
A) to generate revenues. B) to produce assets.
C) to produce liabilities. D) only on rare occasions.
Answer: A
11) The financial statement that summarizes the changes in contributed capital and retained earnings for
a specific period of time is the
A) statement of earnings. B) statement of changes in equity.
C) statement of cash flows. D) statement of financial position.
Answer: B
12) Retained earnings at the end of the period is equal to
A) assets plus liabilities.
B) retained earnings at the beginning of the period plus net earnings minus liabilities.
C) retained earnings at the beginning of the period plus net earnings minus dividends.
D) net earnings for the period
Answer: C
13) What form does financial accounting information provided by an entity to decision makers generally
take?
A) Various forecasts and performance reports.
B) An analysis of changes in the price of a corporation's shares.
C) Financial statements.
D) Comparisons between the company and its competitors.
Answer: C
14) If the retained earnings account increases from the beginning of the year to the end of the year, then
A) additional investments are less than reported losses.
B) dividends were paid.
C) a loss is less than dividends.
D) profit is greater than dividends.
Answer: D
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,15) Shareholders'equity can be described as claims of
A) debtors on total assets. B) creditors on total assets.
C) customers on total assets. D) owners on total assets.
Answer: D
16) Which financial statement would indicate whether the company relies more on debt or shareholders'
equity to finance its assets?
A) Statement of earnings. B) Statement of changes in equity.
C) Statement of financial position. D) Statement of cash flows.
Answer: C
17) Thestatement of financial position and statement of changes in equity are related because
A) the ending amount on the statement of changes in equity is transferred to the statement of cash
flows.
B) both contain information for the corporation.
C) the ending amount on the statement of changes in equity is reported on the statement of
financial position.
D) the total assets on the statement of financial position is reported on the statement of changes in
equity.
Answer: C
18) Carrington Company owes you $500 on account due within 15 days. Which of the following
amounts on its statement of financial position would help you to determine the likelihood that you
will be paid in full and on time?
A) Cash and inventory. B) Contributed capital and retained earnings.
C) Cash and property and equipment. D) Cash and trade receivables.
Answer: D
19) Thestatement of cash flows and the statement of financial position are interrelated because
A) the ending amount of cash on the statement of cash flows must agree with the amount on the
statement of earnings.
B) both disclose the corporation's profit.
C) the ending amount of cash on the statement of cash flows must agree with the amount in the
statement of financial position.
D) the ending amount of cash on the statement of cash flows must agree with the amount in the
statement of changes in equity.
Answer: C
20) Which of the following are the two primary components of shareholders' equity?
A) Short term debt and retained earnings B) Long-term debt and retained earnings.
C) Contributed capital and Retained earnings. D) Non-current assets and liabilities
Answer: C
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, 21) Thestatement of changes in equity is dependent on the results from
A) a company's share capital. B) the statement of financial position.
C) the statement of earnings. D) the statement of cash flows.
Answer: C
22) Theprimary purpose of the statement of cash flows is to report
A) information about cash receipts and cash payments of a company.
B) a company's financing transactions.
C) the net increase or decrease in cash.
D) a company's investing transactions.
Answer: A
23) Kamil'sCar Repair Shop Ltd. started the year with total assets of $70,000 and total liabilities of
$40,000. During the year, the business recorded $100,000 in car repair revenues, $65,000 in
expenses, and dividends of $5,000. Shareholders' equity at the end of the year was
A) $70,000. B) $75,000. C) $65,000. D) $60,000.
Answer: D
24) Themost significant expense for a merchandising company is
A) income taxes B) cost of goods sold
C) equipment maintenance D) salaries expense
Answer: B
25) Onthe statement of financial position, assets may be presented
A) in alphabetical order
B) in order of liquidity
C) in order of reverse liquidity
D) either in order of liquidity or in order of reverse liquidity
Answer: D
26) Retained earnings are
A) the amount of profit kept in the corporation for future use.
B) equal to revenues.
C) equal to cash.
D) the shareholders' claim on total assets.
Answer: A
27) What are business liabilities?
A) Debts or obligations resulting from past business events.
B) Amounts it expects to collect in the future from customers.
C) The amounts that owners have invested in the business.
D) The increases in assets that result from profitable operations.
Answer: A
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1) What is the primary purpose of the statement of financial position?
A) To measure the profit of a business up to a particular point in time.
B) To report assets at their current market value at a particular point in time.
C) To report the financial position of the reporting entity at a particular point in time.
D) To report the difference between cash inflows and cash outflows for the period.
Answer: C
2) On January 1, 20X1, two individuals invested $150,000 each to form Hornbeck Corporation.
Hornbeck had total revenues of $15,000 during 20X1 and $40,000 during 20X2. Total expenses for
the same periods were $8,000 and $22,000, respectively. Cash dividends paid out to shareholders
totaled $6,000 in 20X1 and $12,000 in 20X2. What was the ending balance in Hornbeck's retained
earnings account at the end of 20X1 and 20X2?
A) $1,000 and $6,000 respectively. B) $7,000 and $19,000 respectively.
C) $1,000 and $7,000, respectively. D) $301,000 and $306,000 respectively.
Answer: C
3) The BAT Corporation had revenues of $110,000, expenses of $85,000, and an income tax rate of 20
percent in 20X2. What would profit after taxes be?
A) $25,000. B) $15,000. C) $5,000. D) $20,000.
Answer: D
4) Brown Corporation reported the following amounts at the end of the first year of operations,
December 31, 20X1: Share capital $20,000; Sales revenue $95,000; Total assets $85,000, No
dividends, and Total liabilities $35,000. What would shareholders' equity and total expenses be?
A) Shareholders' equity, $80,000 and expenses $40,000.
B) Shareholders' equity, $80,000 and expenses $85,000.
C) Shareholders' equity, $50,000 and expenses $65,000.
D) Shareholders' equity, $60,000 and expenses $75,000.
Answer: C
5) Which of the following would not be considered an internal user of accounting data?
A) A creditor of a company. B) The controller of a company.
C) A salesperson of a company. D) The president of a company.
Answer: A
6) If total liabilities increased by $25,000 and shareholders' equity increased by $5,000 during a period,
then total assets must change by what amount and direction during that same period?
A) $20,000 decrease. B) $25,000 increase.
C) $30,000 increase. D) $20,000 increase.
Answer: C
7) Which of the following activities involves raising the necessary funds to support the business?
A) Operating. B) Marketing. C) Financing. D) Investing.
Answer: C
1
, 8) Buying assets needed to operate a business is an example of a(n)
A) purchasing activity. B) investing activity.
C) operating activity. D) financing activity.
Answer: B
9) The common characteristic possessed by all assets is
A) tangible nature. B) long life.
C) great monetary value. D) future economic benefit.
Answer: D
10) Expenses are incurred
A) to generate revenues. B) to produce assets.
C) to produce liabilities. D) only on rare occasions.
Answer: A
11) The financial statement that summarizes the changes in contributed capital and retained earnings for
a specific period of time is the
A) statement of earnings. B) statement of changes in equity.
C) statement of cash flows. D) statement of financial position.
Answer: B
12) Retained earnings at the end of the period is equal to
A) assets plus liabilities.
B) retained earnings at the beginning of the period plus net earnings minus liabilities.
C) retained earnings at the beginning of the period plus net earnings minus dividends.
D) net earnings for the period
Answer: C
13) What form does financial accounting information provided by an entity to decision makers generally
take?
A) Various forecasts and performance reports.
B) An analysis of changes in the price of a corporation's shares.
C) Financial statements.
D) Comparisons between the company and its competitors.
Answer: C
14) If the retained earnings account increases from the beginning of the year to the end of the year, then
A) additional investments are less than reported losses.
B) dividends were paid.
C) a loss is less than dividends.
D) profit is greater than dividends.
Answer: D
2
,15) Shareholders'equity can be described as claims of
A) debtors on total assets. B) creditors on total assets.
C) customers on total assets. D) owners on total assets.
Answer: D
16) Which financial statement would indicate whether the company relies more on debt or shareholders'
equity to finance its assets?
A) Statement of earnings. B) Statement of changes in equity.
C) Statement of financial position. D) Statement of cash flows.
Answer: C
17) Thestatement of financial position and statement of changes in equity are related because
A) the ending amount on the statement of changes in equity is transferred to the statement of cash
flows.
B) both contain information for the corporation.
C) the ending amount on the statement of changes in equity is reported on the statement of
financial position.
D) the total assets on the statement of financial position is reported on the statement of changes in
equity.
Answer: C
18) Carrington Company owes you $500 on account due within 15 days. Which of the following
amounts on its statement of financial position would help you to determine the likelihood that you
will be paid in full and on time?
A) Cash and inventory. B) Contributed capital and retained earnings.
C) Cash and property and equipment. D) Cash and trade receivables.
Answer: D
19) Thestatement of cash flows and the statement of financial position are interrelated because
A) the ending amount of cash on the statement of cash flows must agree with the amount on the
statement of earnings.
B) both disclose the corporation's profit.
C) the ending amount of cash on the statement of cash flows must agree with the amount in the
statement of financial position.
D) the ending amount of cash on the statement of cash flows must agree with the amount in the
statement of changes in equity.
Answer: C
20) Which of the following are the two primary components of shareholders' equity?
A) Short term debt and retained earnings B) Long-term debt and retained earnings.
C) Contributed capital and Retained earnings. D) Non-current assets and liabilities
Answer: C
3
, 21) Thestatement of changes in equity is dependent on the results from
A) a company's share capital. B) the statement of financial position.
C) the statement of earnings. D) the statement of cash flows.
Answer: C
22) Theprimary purpose of the statement of cash flows is to report
A) information about cash receipts and cash payments of a company.
B) a company's financing transactions.
C) the net increase or decrease in cash.
D) a company's investing transactions.
Answer: A
23) Kamil'sCar Repair Shop Ltd. started the year with total assets of $70,000 and total liabilities of
$40,000. During the year, the business recorded $100,000 in car repair revenues, $65,000 in
expenses, and dividends of $5,000. Shareholders' equity at the end of the year was
A) $70,000. B) $75,000. C) $65,000. D) $60,000.
Answer: D
24) Themost significant expense for a merchandising company is
A) income taxes B) cost of goods sold
C) equipment maintenance D) salaries expense
Answer: B
25) Onthe statement of financial position, assets may be presented
A) in alphabetical order
B) in order of liquidity
C) in order of reverse liquidity
D) either in order of liquidity or in order of reverse liquidity
Answer: D
26) Retained earnings are
A) the amount of profit kept in the corporation for future use.
B) equal to revenues.
C) equal to cash.
D) the shareholders' claim on total assets.
Answer: A
27) What are business liabilities?
A) Debts or obligations resulting from past business events.
B) Amounts it expects to collect in the future from customers.
C) The amounts that owners have invested in the business.
D) The increases in assets that result from profitable operations.
Answer: A
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