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BU 127 ACCOUNTS

TESTBANK

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' equityand 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

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7) Which of the following activities involves raising the necessary funds to support thebusiness?

A) Operating. B) Marketing. C) Financing. D) Investing.

Answer: C

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Buying assets needed to operate a business is an example of a(n)

B) purchasing activity. B) investing activity.

C) operating activity. D) financing activity.

Answer: B

8) The common characteristic possessed by all assets is

A) tangible nature. B) long life.

C) great monetary value. D) future economic benefit.

Answer: D

9) Expenses are incurred

A) to generate revenues. B) to produce assets.

C) to produce liabilities. D) only on rare occasions.

Answer: A

10) 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

11) 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 minusliabilities.

C) retained earnings at the beginning of the period plus net earnings minus dividends.

D) net earnings for the period

Answer: C

12) 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'sshares.

C) Financial statements.

D) Comparisons between the company and its competitors.

Answer: C

13) 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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14) 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

15) 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

16) The statement of financial position and statement of changes in equity are relatedbecause

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

17) 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 thatyou

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

18) The statement 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

19) 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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