Practice Multiple Choice
Part 1
1. The primary objective of financial reporting is to provide information
A. to the federal government.
B. about the profitability of the enterprise.
C. regarding the cash flows of the enterprise.
D. useful for making investment and lending decisions.
2. How much are the total liabilities if owners’ equity is $38,000 and total assets are $56,000?
A. $94,000 C. $20,000
B. $18,000 D. $74,000
3. Revenues are
A. increases in paid-in capital resulting from the owners putting money into the business.
B. increases in retained earnings resulting from selling products or performing services.
C. increases in liabilities from borrowing money.
D. economic resources.
4. The financial statement which presents a summary of the revenues and expenses of an entity is called the
A. statement of retained earnings. C. income statement
B. statement of cash flows D. balance sheet
5. Another name for the balance sheet is the
A. statement of operations C. statement of profit and loss
B. statement of earnings D. statement of financial position
6.
7. The amount of dividends paid by a company to its owners is shown on the
A. balance sheet
B. income statement
C. statement of retained earnings
D. income statement and retained earnings statement
8. If assets increased by $20,000 during a given period and liabilities decreased by $4,000 during the same
period, stockholders’ equity must have
A. increased by $16,000. C. decreased by $24,000.
B. increased by $24,000. D. decreased by $16,000.
9. The amount of an entity’s receivables as of a given date generally appears on
A. the income statement in the expenses section.
B. the income statement in the revenues section.
C. the balance sheet in the stockholders’ equity section.
D. the balance sheet in the current asset section.
10. All of the following accounts generally are classified as current assets except
A. Furniture C. Office Supplies
B. Accounts Receivable D. Cash
11.
12. Increases in stockholders equity arise from
A. investments in the business by owners.
B. earning net income.
C. borrowing money.
D. both A and B.
13. The stockholders’ equity of Seata Company at the beginning and end of 20x1 amounted to $15,000 and
$18,000, respectively. Assets at the beginning of 20x1 were $25,000. If the liabilities of Seata Company
decreased by $8,000 in 20x1, what was the amount of assets at the end of 20x1? (Challenging!)
A. $20,000 C. $2,000
B. $16,000 D. Some other amount
Table 1-1
The following information is taken from the accounting records after the first period of operation
Accounts payable $ 9 Service revenue 38
Cash 25 Equipment 10
Common stock 200 Retained earnings (ending balance) ?
Dividends 15 Accounts receivable 4
Land 100 Office supplies 5
Utilities expense 2 Salary expense 8
Cash receipts: Cash payments:
Collections from customers 34 Acquisition of land 60
Issuance of stock to owners 70 Dividends 15
To suppliers 6
Sale of equipment 5
14 Total assets are:
A. $150
B. $181
C. $144
D. $158
15. Net income is:
A. $28
B. $13
C. $120
D. $38
Part 2
16. The amount of net income reported on the income statement also appears on the
A. balance sheet. C. statement of retained earnings.
B. statement of financial position. D. both A. and B. but not C.
17. The ending balance of retained earnings appears on
A. both the statement of retained earnings and the balance sheet.
B. the retained earnings statement only.
C. the income statement only.
D. the balance sheet only.
18. CuJo Company had the following amounts at the dates indicated:
12/31/x1 12/31/x0
Total assets $750,000 $520,000
Total liabilities 300,000 200,000
There were no stock transactions in 20x1 and thus the change in CuJo’s stockholders’ equity for 20x1 was
due solely to net income and the payment of cash dividends. If the amount of dividends was $30,000,
how much was CuJo’s net income for 20x1? (Very challenging!)
A. $100,000 C. $160,000
B. $130,000 D. Some other amount
19. Which of the following statements is false?
A. Accounting is the information system that measures business activities, processes that
information into reports, and communicates the results to decision makers.
B. Financial statements report financial information about a business entity to decision maker
C. Owners of a corporation are personally liable for the debts of the corporation.
D. The purpose of financial accounting is to provide information to people outside of the entity, such
as investors and creditors.
20. Wilbur owns and operates a fishing tackle shop. Wilbur needs to borrow money to expand; therefore, he
prepared financial statements to present to his banker. Wilbur obtained appraisals of all the assets of the
business to ensure that the balance sheet would reflect the most current value of the assets. Wilbur has
violated which of the following principles or concepts?
A. Reliability principle C. Going-concern principle
B. Cost principle D. Stable-monetary-unit concept
21. Which of the following is true?
A. Owners’ Equity - Assets = Liabilities
B. Assets – Owners’ Equity = Liabilities
C. Assets + Liabilities = Owners’ Equity
D. Liabilities = Owners’ Equity + Assets
22. G. Harrison Inc experienced a decrease in total assets of $2,000 during the current year. During the same
year, total liabilities decreased $6,000. If dividends for the year were $10,000 and the owners made no
additional investment, how much was net income?
A. $14,000
B. $6,000
C. $18,000
D. $2,000
23. Which of the following statements is true?
A. The income statement reports all changes in assets, liabilities, and stockholders’ equity of the
business during the period.
B. Revenues and expenses are reported only on the balance sheet.
C. The statement of cash flows reports cash flows from three types of business activities--cash
receipts, cash payments, and investing.
D. On the statement of retained earnings, the net income for the period is added to the beginning
balance of retained earnings.
Use the following information for the next 3 questions.
The following accounts and amounts are presented in alphabetical order as of 12/31 (except where noted):
Accounts payable $ 1,500
Accounts receivable 3,000
Cash 6,500
Common stock 19,000
Commission revenue 15,000
Dividends 2,000
Equipment 19,500
Land 23,000
Note payable 15,000
Retained earnings (1/1) 10,000
Salary expense 5,000
Utilities expense 1,500
24. Total assets are:
A. $52,000 C. $49,000
B. $67,000 D. $62,000
25. Net income for the year is:
A. $15,000 C. $14,500
B. $8,500 D. $28,500
26 Retained earnings on 12/31 would be:
A. $10,000 C. $18,500
B. $8,500 D. $16,500
Answers to Practice Multiple Choice
Chapter 1
1. D
2. B
3. B
4. C
5. D
6.
7. C
8. B
9. D
10 A
11.
12. D
13. A
14. C
15. A
16. C
17. A
18 C
19. C
20. B
21. B
22 A
23. D
24. A
25 B
26. D