1. Who are the two primary groups of financial resource providers for a corporation? a. Accountants and CPA’s b.

Suppliers and vendors c. Investors and creditors d. Lenders and Suppliers 2. On which of the following financial statements would you expect to find financing, operating, and investing activities? a. Balance sheet b. Income statement c. Statement of cash flows d. Statement of changes in equity 3. Bulldog company purchased land for $50,000 cash. A financial statement impact of this transaction is a. assets decreased b. equity increased c. cash decreased d. liabilities increased 4. Which of the following statements is false: a. Land that increases in value is reported at its increased value on the balance sheet b. Information is reliable if it can be independently verified c. A reporting entity is a business or entity for which financial statements are prepared d. Financial accounting focuses on the needs of the external users. 5. Which of the following statements is false: a. The general ledger is a collection of a company’s financial accounts. b. The term articulation is used to describe the interrelationship among the various elements of the financial statements. c. All transactions that affect retained earnings also impact the income statement. d. The information in the ledger accounts is used to prepare the financial statements.

6. An advantage of the corporate form of business is that a. it has limited life. b. its owner’s personal resources are at stake. c. its ownership is easily transferable via the sale of shares of stock. d. it is simple to establish..

7. Which of the following is an advantage of corporations relative to partnerships and
sole proprietorships? a. Reduced legal liability for investors. b. Harder to transfer ownership.


c. Lower taxes. d. Most common form of organization.

8. Which of the following groups uses accounting information to determine whether the
company’s net income will result in a stock price increase? a. Investors in common stock b. Marketing managers c. Creditors d. Chief Financial Officer

9. Dividends paid
a. b. c. d. increase assets. increase expenses. decrease revenues. decrease retained earnings.

10. In the annual report, where would a financial statement reader find out if the
company’s financial statements give a fair depiction of its financial position and operating results? a. Notes to the financial statements b. Management discussion and analysis section c. Balance sheet d. Auditor’s report 11. In a classified balance sheet, assets are usually classified as: a. current assets; long-term assets; property, plant, and equipment; and intangible assets. b. current assets; long-term investments; property, plant, and equipment; and common stocks. c. current assets; long-term investments; tangible assets; and intangible assets. d. current assets; long-term investments; property, plant, and equipment; and intangible assets. 12. An intangible asset a. derives its value from the rights and privileges it provides the owner. b. is worthless because it has no physical substance. c. is converted into a tangible asset during the operating cycle. d. cannot be classified on the balance sheet because it lacks physical substance. 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. 14. Accounting information should be neutral in order to enhance a. reliability. b. consistency. c. comparability. d. relevance. 15. The time period assumption states that


a. a transaction can only affect one period of time. b. estimates should not be made if a transaction affects more than one time period. c. adjustments to the enterprise's accounts can only be made in the time period when the business terminates its operations. d. the economic life of a business can be divided into artificial time periods. 16. One of the accounting concepts upon which adjustments for prepayments and accruals are based is a. matching. b. cost. c. monetary unit. d. economic entity. An accounting time period that is one year in length is called a. a fiscal year. b. an interim period. c. the time period assumption. d. a reporting period.


18. Which of the statements below is not true? a. An adjusted trial balance should show ledger account balances. b. An adjusted trial balance can be used to prepare financial statements. c. An adjusted trial balance proves the mathematical equality of debits and credits in the ledger. d. An adjusted trial balance is prepared before all transactions have been journalized. 19. The purpose of the post-closing trial balance is to a. prove that no mistakes were made. b. prove the equality of the permanent account balances that are carried forward into the next accounting period. c. prove the equality of the temporary account balances that are carried forward into the next accounting period. d. list all the balance sheet accounts in alphabetical order for easy reference. 20. Ratios are used as tools in financial analysis a. instead of horizontal and vertical analyses. b. because they can provide information that may not be apparent from inspection of the individual components of the financial statements. c. because even single ratios by themselves are quite meaningful. d. because they are prescribed by GAAP. 21.In order to be relevant, accounting information must a. be neutral. b. be verifiable. c. help predict future events. d. be a faithful representation. 22.If ending inventory is overstated, net income and assets will be Net Income Assets a. Understated Understated b. Overstated Overstated


c. Understated d. Overstated

Overstated Understated

23.One of the two constraints in accounting is a. comparability. b. materiality. c. reliability. d. relevance. 24. The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the a. economic entity assumption. b. going concern assumption. c. monetary unit assumption. d. time period assumption.

Designate the terminology that best represents the definition or statement given below by placing the identifying letter(s) in the space provided. No letter should be used more than once. A. B. C. D. E. F. G. H. I. J. K. L. M. N. O. P. Q. R. S. T. U. V. W. Additions and improvements Allowance method Amortization Available-for-sale securities Average cost method Book value Capital expenditure Cash debt coverage ratio Consistency Contra asset account Cost method Credit memorandum Debit memorandum Declining-balance method Depreciable Cost Depreciation Direct write-off method Discontinued operations Earnings per share Economic entity assumption Equity method Extraordinary items First-in, first-out method X. Full disclosure principle Y. Going-concern assumption Z. Held-to-maturity securities AA. Internal control AB. Last-in, first-out method AC. LIFO reserve AD. Matching principle AE. Materiality AF. Monetary unit assumption AG. Net purchases AH. Periodic inventory system AI. Permanent accounts AJ. Perpetual inventory system AK. Ratio analysis AL. Relevance AM. Reliability AN. Revenue expenditure AO.Revenue recognition principle AP. Stock dividend AQ. Stock split AR. Temporary accounts AS. Time period assumption AT. Units-of-activity method

__AT_1. The periodic write-off of an intangible asset. _W__ 2. The total amount subject to depreciation. _AS__3. The principle that efforts be matched with accomplishments. _V__ 4. An expenditure charged against revenues as an expense when incurred.


_AR__5. The inventory costing method that assumes that the costs of the earliest goods purchased are the first to be recognized as cost of goods sold. _U__ 6. Use of the same accounting principles and methods from period to period by the same business enterprise. __AQ_7. A measure of solvency calculated as cash provided by operating activities divided by average total liabilities. _T__ 8. An inventory costing method that assumes that the latest units purchased are the first to be allocated to cost of goods sold. _AP__9. An assumption that economic events can be identified with a particular unit of accountability. _S__10. A characteristic of information that means it is capable of making a difference in a decision. _AO__11. An assumption that the economic life of a business can be divided into artificial time periods. __R_12. This method of accounting for uncollectible accounts is required when bad debts are significant in size. __AN_13. Used by a bank when a previously deposited customer’s check “bounces” because of insufficient funds. _Q__14. The assumption that the enterprise will continue in operation long enough to carry out its existing objectives and commitments. __AM_15. A system in which detailed records are not maintained and cost of goods sold is determined only at the end of an accounting period. _A__16. The methods and measures adopted within a business to safeguard its assets and enhance the accuracy and reliability of its accounting records. D___17. Revenue, expense, and dividends accounts whose balances are transferred to retained earnings at the end of an accounting period. _B__18. A technique for evaluating financial statements that expresses the relationship among selected financial statement data. _E__19. A pro rata distribution of a corporation’s own stock to its stockholders. __C_20. The net income earned by each share of outstanding common stock.

1. Indicate in the space by letter whether each statement below applies to a sole proprietorship (S), partnership (P), or corporation (C). More than one answer may be appropriate. P____ a. Shared control. S____ b. Easy to transfer ownership.


C____ c. No personal liability. C____ d. Tax advantage. C____ e. Easier to raise funds.

2. For each of the ratios listed below, indicate by the appropriate code letter, whether it
is a liquidity ratio, a profitability ratio, or a solvency ratio. Code: L = P = S = L____ P____ L____ P____ S____ Liquidity ratio Profitability ratio Solvency ratio

1. Price-earnings ratio 2. Free cash flow 3. Debt to total assets ratio 4. Earnings per share 5. Current ratio

3. Indicate in the space provided by each item whether it would appear on the Income Statement (IS), Balance Sheet (BS), or Retained Earnings Statement (RE): a. IS____ Service Revenue b. BS___ Utilities Expense c. IS____ Cash d. BS___ Accounts Payable e. IS____ Office Supplies f. IS____ Wage Expense g. BS___ Accounts Receivable h. RE___ Common Stock i. j. RE___ Equipment BS___ Advertising Expense

k. RE___ Dividends l. BS___ Notes Payable

4. Match the items below by entering the appropriate code letter in the space provided.
A. B. C. D. E. J____ G____ D____ F____ H____ Internal users Management discussion and analysis Annual report Sole proprietorship Dividends F. G. H. I. J. Corporation Assets Liabilities Expenses Investing activities

1. Distributions of cash from a corporation to its stock holders. 2. Consumed assets or services. 3. Ownership is limited to one person. 4. Officers and others who manage the business. 5. Creditor claims against the assets of the business.


J____ C____ B____ E____

6. A separate legal entity under state laws. 7. A report prepared by management that presents financial information. 8. A section of the annual report that presents management’s views. 9. Future economic benefits.

A____ 10. Involves acquiring the resources necessary to run the business.

Matching Each Ratio with Its Computational Formula Match each ratio or percentage with its formula by entering the appropriate letter for each numbered item. Match with letter Below A. Net income / Net sales revenue. B. (Net sales revenue - Cost of goods sold) / Net sales revenue. C. Current assets / Current liabilities. D. Cost of goods sold / Average inventory. E. Net credit sales revenue / Average net receivables. F. Net cash flows from operating activities / Net income. G. Net income / Average number of common shares outstanding. H. Total liabilities / Total assets. I. (Net income + Interest expense + Income tax expense) / Interest expense. J. Net cash flows from operating activities / Cash paid for property, plant, and equipment. K. Current market price per share / Earnings per share. L. Net income / Average total stockholders’ equity. M. Net cash flows from operating activities (before interest and taxes) / Interest paid. N. Net sales revenue / Average net fixed assets. Ratios or Percentages Formula __E__1. Net profit margin __F__2. Inventory turnover ratio __I__3. Cash coverage ratio __B__4. Fixed asset turnover _H___5. Capital acquisitions ratio __C__6. Return on equity __J__7. Current ratio _A___8. Debt-to-assets ratio _K___9. Price/earnings ratio _G___10. Receivables turnover ratio _L___11. Earnings per share _M___12. Quality of income ratio __N__13. Gross profit percentage __D__14. Times interest earned




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