21 Jan Distributions of cash from

ACC556 Financial Accounting for Managers

CHAPTER 1 EXERCISE

Question 1 When expenses exceed revenues, which of the following is true?

Answers:

a net loss results

a net income results

assets equal liabilities

assets are increased

Question 2 Which of the following is not a common way that managers use the balance sheet?

Answers:

To analyze the balances of assets, liabilities, and stockholders’ equity throughout the accounting period

To determine if the cash balance is sufficient for future needs

To analyze the balance between debt and common stock financing

To analyze the balance of accounts receivable on the last day of the accounting period MT

Question 3 Stockholders’ equity is comprised of

Answers:

common stock and dividends.

common stock and retained earnings.

dividends and retained earnings.

net income and retained earnings.

Question 4 External users want answers to all of the following questions except

Answers:

Is the company earning satisfactory income?

Will the company be able to pay its debts as they come due?

Will the company be able to afford employee pay raises this year?

How does the company compare in profitability with competitors?

Question 5 One way of stating the accounting equation is: Assets + Liabilities = Stockholders’ Equity.

Selected Answer:

False

Answers:

True

False

Question 6 Which of the following would not be considered an external user of accounting data for the Julian Company?

Answers:

Internal Revenue Service agent

Management

Creditors

Customers

Question 7 Which of the following statements is not true regarding the Sarbanes-Oxley Act (SOX)?

Answers:

The Act calls for increased oversight responsibilities for boards of directors.

The Act has resulted in increased penalties for financial fraud by top management.

The Act calls for decreased independence of outside auditors reviewing corporate financial statements.

The Act is meant to decrease the likelihood of unethical corporate behavior.

Question 8 External users want answers to all of the following questions except

Answers:

Is the company earning satisfactory income?

Will the company be able to pay its debts as they come due?

Will the company be able to afford employee pay raises this year?

How does the company compare in profitability with competitors?

Question 9 When expenses exceed revenues, which of the following is true?

Answers:

a net loss results

a net income results

assets equal liabilities

assets are increased

Question 10 Claims of creditors and owners on the assets of a business are called liabilities.

Answers:

True

False

Question 11 Which of the following activities involves collecting the necessary funds to support the business?

Answers:

Operating

Investing

Financing

Delivering

Question 12 Which of the following is not a common way that managers use the balance sheet?

Answers:

To analyze the balances of assets, liabilities, and stockholders’ equity throughout the accounting period

To determine if the cash balance is sufficient for future needs

To analyze the balance between debt and common stock financing

To analyze the balance of accounts receivable on the last day of the accounting period MT

Question 13 Accounting communicates financial information about a business to both internal and external users.

Answers:

True

False

Question 14 A business organized as a corporation

Answers:

is not a separate legal entity in most states.

requires that stockholders be personally liable for the debts of the business.

is owned by its stockholders.

has tax advantages over a proprietorship or partnership.

Question 15 Ashley’s Accessory Shop started the year with total assets of $140,000 and total liabilities of $80,000. During the year the business recorded $220,000 in revenues, $110,000 in expenses, and dividends of $40,000. The net income reported by Ashley’s Accessory Shop for the year was

Answers:

$80,000.

$100,000.

$130,000.

$110,000.

Question 16 Match the items below by entering the appropriate code letter in the space provided.

Question

Distributions of cash from a corporation to its stock holders.

.

Dividends

Consumed assets or services.

Expenses

Ownership is limited to one person.

.

Sole proprietorship

Officers and others who manage the business.

Internal users

Creditor claims against the assets of the business.

Liabilities

A separate legal entity under state laws.

Corporation

A report prepared by management that presents financial information.

Annual report

A section of the annual report that presents management’s views.

Management discussion and analysis

Resources expected to providefuture economic benefits.

Assets

The acquiring of the resources necessary to run the business.

Investing activities

Question 17 A business organized as a separate legal entity owned by stockholders is a partnership.

Answers:

True

False

Question 18 The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company for a specific period of time.

Answers:

True

False