MGMT 200 Exam 1 - Purdue University

Preparing a budget for a business is considered

A. financial accounting.

B. managerial accounting.

B. managerial accounting.

(Management accounting provides information to people within an organization while financial accounting is mainly for those outside it, such as shareholders.)

Accounting is the information system that

A. measures business activities

B. communicates the results to decision

makers

C. processes information into reports

D. all of the above.

D. all of the above.

Which of the following is not an external user of

a business's financial information?

A. Taxing authorities

B. Customers

C. Employees

D. Investors

C. Employees

Which statement below best describes the accounting

equation?

A. The change in retained earnings equals net

income less dividends.

B. Equality of revenue and expense transactions

over time.

C. Financing activities equal investing and

operating activities.

D. Resources of the company equal creditors' and

owners' claims to those resources.

D. Resources of the company equal creditors' and

owners' claims to those resources.

(assets = liabilities + stockholders' equity)

Owners' claims to the company's resources are

referred to as:

A. Liabilities.

B. Assets.

C. Stockholders' equity.

D. Net liabilities.

C. Stockholders' equity.

(assets = liabilities + stockholders' equity)

If total assets of a company equal $25,000 and

total stockholders' equity equals $10,000, then

total liabilities equal $15,000.

A. True

B. False

A. True

(Assets = Liabilities + Equity

$25,000 = $15,000 + $10,000)

Amounts owed to suppliers for supplies

purchased on account are defined as a(n):

A. Revenue.

B. Asset.

C. Liability.

D. Expense.

C. Liability

(assets = liabilities + stockholders' equity)

If total liabilities of a company equal $29,000

and total stockholders' equity equals $15,000,

then total assets equal $14,000.

A. True

B. False

B. False

(Assets = Liabilities + Equity

$44,000 = $29,000 + $15,000)

Financial accounting does not deal with which of the following?

A. Measuring a company's economic activity.

B. Providing information to internal users.

C. Preparing financial reports.

D. Communicating financial results to

investors.

B. Providing information to internal users.

The accounting equation shows that a

company's resources equal creditors' and owners' claims to those resources.

A. True

B. False

A. True

An alternative form of the accounting equation is:

A. Assets ‐ Liabilities = Stockholders' Equity.

B. Net Income = Revenues ‐ Expenses.

C. Stockholders' Equity = Assets + Liabilities.

D. Assets = Liabilities ‐ Stockholders' Equity.

A. Assets ‐ Liabilities = Stockholders' Equity.

Which of the following does not represent an asset of a company?

A. Supplies held by the company.

B. Amounts owed to suppliers.

C. Equipment owned and used for

operations.

D. Amounts receivable from customers.

B. Amounts owed to suppliers.

(Liability)

The amounts recorded when the company sells

products or provides services to customers are

referred to as:

A. Liabilities

B. Revenues

C. Assets

D. Expenses

B. Revenues

(Revenues are recorded at the time

the company provides products or

services to customers)

If a company has stockholders' equity of $25,000 at the

end of the year, which of the following statements

must be true?

A. The company has issued $25,000 of common

stock.

B. Net income for the year equals $25,000.

C. The company's assets exceed liabilities by

$25,000.

D. Total revenues during the year equal $25,000.

C. The company's assets exceed liabilities by

$25,000.

(assets = liabilities + stockholders' equity

assets ‐ liabilities = stockholders' equity

assets ‐ liabilities = $25,000)

The costs of providing goods and services to

customers are referred to as:

A. Assets

B. Expenses

C. Liabilities

D. Revenues

B. Expenses

Using the information below from the accounting records of

Knomark Corporation, stockholders' claims to the company's

resources amount to:

-Assets $1,200,000

-Liabilities $800,000

-Net income $100,000

-Retained earnings $250,000

A. $1,200,000

B. $800,000.

C. $250,000

D. $400,000

D. $400,000

(assets = liabilities + stockholders' equity

$1,200,000 = $800,000 + $400,000)

Which of the following best describes revenue?

A. Resources of a company.

B. Sales of goods and services to a customer.

C. Cash received from a customer.

D. Dividends paid to stockholders.

B. Sales of goods and services to a customer.

The difference between revenues and expenses

is referred to as net income or net loss.

A. True

B. False

A. True

Use the following amounts to calculate net income:

Revenues, $12,000; Liabilities, $5,000; Expenses,

$4,000; Assets, $19,000; Dividends, $4,000

A. $6,000.

B. $8,000.

C. $4,000.

D. $14,000.

B. $8,000

(Revenues - Expenses = Net Income)

Dividends represent a return of the company's

profits to its owners, the stockholders.

A. True

B. False

A. True

The resources of a company are referred to as:

A. Liabilities

B. Revenues

C. Assets

D. Expenses

C. Assets

(Assets benefit future operations. Examples are

cash, inventory, supplies, accounts receivable,

buildings and equipment.)

Liabilities can be best described as:

A. The amount of expenses over the past year.

B. The amount expected to be distributed to stockholders.

C. The amount owed to creditors

D. The amount of services provided to customers during the year.

C. The amount owed to creditors

(Storage account used is accounts payable)

Most business enterprises in the United

States are

A. government units.

B. partnerships

C. sole proprietorships.

D. corporations.

C. sole proprietorships.

Transfer of ownership will not affect the continuity of a

A. corporation or partnership

B. corporation

C. partnership

D. sole proprietorship

B. corporation

Which business form has the advantage of

limited liability?

A. Corporation

B. Sole proprietorship

C. Partnership

D. All business forms share equal limited

liability

A. Corporation

(Stockholders of a

corporation are not

obligated to pay the

corporation's debts out

of their own pocket.)

Which of the following is an operating activity?

A. Issuing common stock.

B. Paying dividends.

C. Borrowing cash from a bank to acquire a

factory.

D. Paying electricity bills for the month.

D. Paying electricity bills for the month.

Financing activities include:

A. The purchase of a building.

B. Issuing common stock to stockholders.

C. Transactions with company employees.

D. Selling goods or services to customers.

B. Issuing common stock to stockholders.

How many of the following transactions are operating

activities?

1. Borrowed $50,000 from the bank

2. Purchased $12,000 in supplies

3. Provide services to customers for $27,000

4. Paid the utility bill of $750

5. Purchased a delivery truck for $12,000

6. Received $25,000 from issuing common stock

A. One.

B. Two

C. Three

D. Four

C. Three

(2. Purchased $12,000 in supplies

3. Provide services to customers for $27,000

4. Paid the utility bill of $750)

Transactions related to the primary business

activities of the company, such as selling goods

and services to customers, are referred to as:

A. Investing activities.

B. Operating activities.

C. Management activities.

D. Financing activities.

B. Operating activities.

Amalgamated Company engages in the following cash

payments:

-Paid dividends to owners $2,000

-Paid rent 500

-Repay loan to the bank 5,000

-Purchase equipment 1,000

What is the total amount of cash paid for operating

activities?

A. $1,500

B. $500

C. $6,000.

D. $2,000

E. $7,000

B. $500

(?)

The equation best describing the income statement is:

A. Revenues ‐ Expenses = Income

B. Assets = Revenues - Expenses

C. Assets = Liabilities + Stockholders' Equity

D. Revenues + Expenses = Income

A. Revenues ‐ Expenses = Income

(DADE CLER)

The costs related to rent, utilities, and salaries in

the current reporting period are examples of

liabilities.

A. True

B. False

B. False

(these are examples of expenses)

Which of the following items would not appear

in an income statement?

A. Salaries expense

B. Service revenue

C. Cash

D. Advertising expense

C. Cash

Which of the following best explains the meaning of

total stockholders' equity?

A. The difference between total revenues and total

expenses, less dividends for the year.

B. The amount of common stock less dividends

over the life of the company.

C. All revenues, expenses, and dividends over the

life of the company.

D. The amount of capital invested by stockholders

plus profits retained over the life of the

company.

D. The amount of capital invested by stockholders

plus profits retained over the life of the

company.

(Stockholders' Equity = Common Stock(capital) + Retained Earnings(profits less dividends) )

The statement of changes in stockholders'

equity is a financial statement that summarizes

stockholders' equity at a point in time.

A. True

B. False

B. False

(summarizes the changes in stockholders'

equity over an interval of time)

Given the information below about Royce Corporation, what

was the amount of dividends the company paid in the current

period?

-Beginning retained earnings $54,000

-Ending retained earnings $110,000

-Decrease in cash $10,000

-Income $84,000

-Change in stockholders' equity $15,000

A. $13,000

B. $110,000

C. $28,000

D. $18,000

C. $28,000

(Beginning R/E: $54,000

+

Income: $84,000

=

$138,000

- (less)

Dividends: $28,000

=

Ending R/E: $110,000)

Retained earnings at the end of the year is calculated

using:

A. Beginning retained earnings, income, and

dividends.

B. Common stock and dividends.

C. Stockholders' equity, income, and dividends.

D. Income and dividends.

A. Beginning retained earnings, income, and

dividends.

Which of the following accounts represents a

resource of the company?

A. Common stock.

B. Service revenue.

C. Accounts receivable.

D. Supplies expense.

C. Accounts receivable.

(Amts. due from customers)

Amounts owed to suppliers for supplies

purchased on account are defined as a(n):

A. Revenue.

B. Asset.

C. Liability.

D. Expense.

C. Liability.

(Accounts payable is the

storage account)

Emmitt had the following final balances after the first year of operations: assets, $55,000; stockholders' equity, $25,000; dividends, $3,000; and income,

$10,000. What is the amount of Emmitt's liabilities?

A. $55,000.

B. $30,000.

C. $13,000.

D. $ 7,000

B. $30,000.

(Assets ‐ Liabilities = Stockholders Equity

$55,000 ‐ $30,000 = $25,000)

Any transaction that affects the income

statement ultimately affects the balance sheet

through the balance of retained earnings.

A. True

B. False

A. True

How many of following accounts would appear in a year‐end

balance sheet?

-Accounts Payable $4,400

-Salaries Expense 12,800

-Cash 1,700

-Common Stock 2,400

-Service Revenue 8,300

-Supplies 4,300

-Retained Earnings 1,100

-Utilities Expense 5,000

A. five

B. four

C. three

D. two

A. five

(-Accounts Payable $4,400

-Cash 1,700

-Common Stock 2,400

-Supplies 4,300

-Retained Earnings 1,100)

Investing cash flows in the statement of cash

flows would include which of the following?

A. Paying salaries for the month.

B. Purchase of land.

C. Paying dividends to stockholders.

D. Selling goods or services to customers.

B. Purchase of land.

Cash received from bank borrowing would be

reported in the statement of cash flows as what

type of activity?

A. Investing

B. Organizing

C. Operating

D. Financing

D. Financing

How many of the following transactions would affect operating

cash flows reported in the statement of cash flows (all

transaction involve cash)?

1. Borrowed $50,000 from the bank

2. Purchased $12,000 in supplies

3. Provide services to customers for $27,000

4. Paid the utility bill of $750

5. Purchased a delivery truck for $12,000

6. Received $25,000 from issuing common stock

A. one

B. two

C. three

D. four

C. Three

(2. Purchased $12,000 in supplies

3. Provide services to customers for $27,000

4. Paid the utility bill of $750)

Income (loss) appears in which two financial statements?

A. Balance sheet and income statement.

B. Income statement and statement of stockholders' equity.

C. Statement of stockholders' equity and balance sheet.

D. Income appears in only one financial statement.

B. Income statement and statement of stockholders' equity.

Which one of the following statements regarding

financial reports is correct?

A. The balance sheet classifies all assets according to operating, investing, and financing activities.

B. The income statement is used to show that a company's resources equal claims to those resources.

C. The statement of stockholders' equity updates the balances of common stock and retained

earnings for related transactions during the year.

D. The statement of cash flows shows cash inflows and outflows from operating activities only.

C. The statement of stockholders' equity updates the balances of common stock and retained earnings for related transactions during the year.

(Stockholder's Equity = Common Stock(external) + Retained Earnings(internal) )

The financial statement(s) that record activity

over an interval of time include the

A. Income statement

B. Balance sheet

C. Balance sheet and income statement

D. Income statement and statement of cash

flows.

D. Income statement and statement of cash

flows.

In what order are the following financial

statements prepared: (1) balance sheet, (2)

income statement, and (3) statement of

stockholders' equity?

A. 1, 2, 3.

B. 3, 2, 1

C. 1, 3, 2

D. 2, 3, 1

D. 2, 3, 1

((2) income statement

(3) statement of stockholders' equity

(1) balance sheet)

Which financial statement best reveals to

investors and creditors information about a

company's debt?

A. Income statement

B. Balance sheet

C. Statement of cash flows

D. Statement of stockholders' equity

B. Balance sheet

Which of the following best represents value

created for stockholders during the current

period?

A. Retained earnings

B. Income.

C. Total assets.

D. Stockholders' equity.

B. Income

(Income reflects profits earned (value created)

by the company during the current period.)

The body of rules and procedures that guide the

measurement and communication of financial

accounting information in the United States is known as

A. Standards of Professional Compliance (SPC).

B. Generally Accepted Accounting Principles

(GAAP).

C. Generally Accepted Auditing Standards (GAAS).

D. Rules of Financial Reporting (RFR).

B. Generally Accepted Accounting Principles

(GAAP).

The legal authority to set accounting standards

lies with the:

A. Financial Accounting Standards Board.

B. Accounting Principles Board.

C. Securities and Exchange Commission.

D. American Institute of Certified Public

Accountants.

C. Securities and Exchange Commission.

Of the following, the most important objective

for financial accounting is to provide

information useful for:

A. Predicting cash flows.

B. Determining taxable income.

C. Providing accountability.

D. Increasing future profits.

A. Predicting cash flows.

For accounting information to be relevant, it should

possess which of the following characteristics?

A. Predictive value, confirmatory value, and/or

materiality.

B. Large in amount and timely.

C. Comparability or consistency.

D. Verifiability.

A. Predictive value, confirmatory value, and/or

materiality.

Which of the following requires accounting

information to be complete, neutral, and free

from material error?

A. Economic entity assumption.

B. Cost principle.

C. Faithful representation concept.

D. Going concern assumption.

C. Faithful representation concept.

External events include all of the following except:

A. Paying rent.

B. Purchasing equipment.

C. Using office supplies.

D. Collecting an account receivable.

C. Using office supplies.

(end of the period adjustment)

Those who lend money or deliver goods and services

before being paid are called

A. investors

B. debtors

C. underwriters

D. creditors

D. creditors

What is the best definition of an accounts receivable?

A. an amount owed by the company to others.

B. owners' investment in the business.

C. amounts owed by customers to a company

D. none of the above

C. amounts owed by customers to a company

The full set of procedures used to accomplish the

measurement/communication process of financial

accounting is referred to as the:

A. Trial balance

B. Accounting cycle

C. Chart of accounts

D. General ledger

B. Accounting cycle