Ch. 1-3 Practice Questions

Question 1

The term used to describe the total assets that Starbucks receives in exchange for its coffee is…

Answer 1

Revenue

Question 2

Which of the following didn’t result from the Sarbanes-Oxley Act?

Answer 2

Tax rates on corporations increased

Question 3

The Financial statement contains the following info:
Accounts receivable 5,000
Sales revenue 75,000
Cash 15,000
Salaries and wages expense 20,000
Rent expense 10,000
What is net income?

Answer 3

45,000
Net Income = Revenue - Expenses
Net Income = Sales revenue - salaries and wages expense- rent expense
= 75-20-10
= 45

Question 4

Stock holder’s equity represents

Answer 4

Claims of owners

Question 5

All of the following are current assets except:

Answer 5

Patents (Intangible asset)

Question 6

Free cash flow:

Answer 6

Both provides additional insight regarding a company’s cash-generating ability (operations) and describes the cash remaining from operations after adjusting for capital expenditures and dividends

Question 7

The following ratios for Reilly Inc. and O’Hare Inc.
Reilly current ratio 2:1, debt to assets ratio 75%, EPS 3.5
O’Hare current ratio 1.5:3 debt to assets 40%, EPS 2.75
Compared to O’Hare, Reilly has

Answer 7

Higher liquidity, lower solvency, and profitability unknown
Current ratio = liquidity
Debt to assets ratio = Solvency (survival)
Earning per share = profitability (don’t know other factors such as variations in stocks)

Question 8

What organization issues US accounting standards?

Answer 8

The Financial Accounting Standard’s Board

Question 9

What is the primary criterion by which accounting information can be judged?

Answer 9

Usefulness for decision making

Question 10

Neutrality is an ingredient of

Answer 10

Yes (Faithful representation) No (relevance)

Question 11

Which of the following mistakes will a trial balance most likely detect?

Answer 11

A debit balance is recorded as a credit balance

Question 12

The effect on the basic equation of performing services for cash are to:

Answer 12

Increase assets and increase stockholders equity (revenue)

Question 13

Genesis company buys a $900 machines on credit. This transaction will effect the

Answer 13

Balance sheet only (assets, equipment and liabilities, accounts payable increase, only balance sheet accounts)

Question 14

Gibson company decreased assets by 50,000, liabilities decreased by 90,000. Its stockholders equity is therefore

Answer 14

Increased by 40,000
-50,000 = -90,000 -x
x=40,000

Question 15

The elements of a corporation’s annual report that describes the corporation’s accounting method are

Answer 15

Notes to the financial statements