Question 1

Which of the following is a separate legal entity?&#10;A) Proprietorship.&#10;B) Sole proprietorship.&#10;C) Corporation.&#10;D) Partnership.

Accepted Answer

A corporation is a separate legal entity that is distinct from its owners. It has its own legal rights and liabilities and can enter into contracts, sue or be sued, own and sell property, and pay its own taxes. Proprietorship, sole proprietorship, and partnership are not separate legal entities and are instead considered extensions of their owners' personal liabilities.

Question 2

Which of the following is FALSE?&#10;A) Intangible assets are noncurrent assets that do not have physical substance.&#10;B) Obligations expected to be paid after one year are classified as long-term liabilities.&#10;C) Current assets are listed in the order of magnitude (size).&#10;D) Property, plant, and equipment are assets with relatively long useful lives that are used in operating the business.

Accepted Answer

Current assets are not necessarily listed in the order of magnitude (size). They are typically listed in order of liquidity, or how easily they can be converted into cash.

Question 3

GAAP refers to:&#10;A) general accounting and auditing principles.&#10;B) guidelines for American accounting procedures.&#10;C) General Association of Accounting Practitioners.&#10;D) generally accepted accounting principles.

Accepted Answer

GAAP stands for generally accepted accounting principles, which are a set of standards and rules that companies follow when preparing financial statements. These principles ensure consistency and transparency in financial reporting and are recognized as the standard framework for accounting in the United States.

Question 4

Which is an indicator of profitability?&#10;A) Current ratio.&#10;B) Earnings per share.&#10;C) Free cash flow.&#10;D) Working capital.

Accepted Answer

Earnings per share is a measure of the profitability of a company as it shows the amount of net income earned per share of common stock outstanding. A higher earnings per share indicates a more profitable company. While current ratio, free cash flow, and working capital are all important financial metrics, they are not specifically indicators of profitability.

Question 5

Current assets are listed:&#10;A) alphabetically.&#10;B) by importance.&#10;C) by longevity.&#10;D) by liquidity.

Accepted Answer

Current assets are typically listed in order of liquidity, with the most liquid assets listed first. This makes it easier for financial analysts and investors to quickly determine the company's ability to meet their short-term obligations.

Question 6

The Retained Earnings account had a beginning balance of $60,000 and an ending balance of $70,000. If $20,000 of dividends were declared and paid during the period, net income must have been:&#10;A) $20,000.&#10;B) $30,000.&#10;C) $10,000.&#10;D) $50,000.

Accepted Answer

The formula to calculate ending Retained Earnings is:

Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings

We know that:

Beginning Retained Earnings = $60,000
Ending Retained Earnings = $70,000
Dividends = $20,000

Therefore, we can rearrange the formula to solve for Net Income:

Net Income = Ending Retained Earnings - Beginning Retained Earnings + Dividends
Net Income = $70,000 - $60,000 + $20,000
Net Income = $30,000

Therefore, the net income for the period was $30,000.

Question 7

A financial statement that reports accounting data at a specific date is the:&#10;A) balance sheet.&#10;B) retained earnings statement.&#10;C) income statement.&#10;D) statement of cash flows.

Accepted Answer

A balance sheet reports accounting data at a specific date, showing a company's assets, liabilities, and equity. The retained earnings statement reports changes in retained earnings over a period of time, the income statement reports a company's revenues and expenses over a period of time, and the statement of cash flows reports a company's cash inflows and outflows over a period of time.

Question 8

Which of the following is NOT considered an external user of accounting information?&#10;A) Bankers.&#10;B) Taxing authority.&#10;C) Manager.&#10;D) Labor Unions.

Accepted Answer

Managers are considered internal users of accounting information, as they are within the organization and use financial information to make decisions about the operations of the organization. Bankers, taxing authorities, and labor unions are all examples of external users of accounting information, as they are outside the organization and use financial information for their own purposes.

Question 9

Financial statements combining the operations of Macy's and Dillard's would violate the:&#10;A) monetary unit assumption.&#10;B) economic entity assumption.&#10;C) cost principle.&#10;D) full disclosure principle.

Accepted Answer

The economic entity assumption states that a business is separate and distinct from its owners and any other business. Combining the financial statements of Macy's and Dillard's would go against this assumption as they are two separate entities.

Question 10

Indicate which of the following items would not be reported in the operating section of the statement of cash flows.&#10;A) Cash received from customers&#10;B) Cash paid for dividends.&#10;C) Cash paid for salaries.&#10;D) Cash received for dividends.

Accepted Answer

Cash paid for dividends is reported in the financing section, not the operating section, of the statement of cash flows.

Question 11

If total liabilities decreased by $30,000 during a period of time and stockholders' equity increased by $35,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is a:

A) $65,000 increase.
B) $5,000 increase.
C) $5,000 decrease.
D) $65,000 decrease.

Accepted Answer

The answer of If total liabilities decreased by $30,000 during...

Question 12

To be relevant, accounting information must:&#10;A) be capable of making a difference in a decision.&#10;B) be presented on the balance sheet.&#10;C) be recorded at historical cost.&#10;D) improve the company's internal control.

Accepted Answer

The answer of To be relevant, accounting information must:&#10;A) be...

Question 13

Limited liability (no liability beyond investment) is not enjoyed by the owner(s) of a:&#10;A) partnership and proprietorship.&#10;B) partnership and corporation.&#10;C) proprietorship and corporation.&#10;D) corporation.

Accepted Answer

The answer of Limited liability (no liability beyond investment) is...

Question 14

In accounting, which of the following is NOT a description of faithful representation as it relates to accounting information?&#10;A) Complete.&#10;B) Be the least likely to overstate assets or income.&#10;C) Free from error.&#10;D) Neutral.

Accepted Answer

The answer of In accounting, which of the following is...

Deck 1: Introduction to Financial Statements