Quizzes from Financial Accounting

Question 1

Limited liability means:

A. Companies are not allowed to borrow unless they are profitable.
B. Companies are less likely to be sued if they are formed as a corporation.
C. Stockholders of a corporation are not obligated to pay the corporation’s debts out of their own pocket.
D. Liabilities of a company cannot exceed its assets.

Answer 1

C. Stockholders of a corporation are not obligated to pay the corporation’s debts out of their own pocket.

Question 2

Which of the following accounts appears in the statement of stockholders’ equity?

A. Cash.
B. Supplies.
C. Salaries Payable.
D. Retained Earnings.

Answer 2

D. Retained Earnings.

Question 3

Which of the following is the correct order for preparing the financial statements?

A. Balance sheet, income statement, and statement of stockholders’ equity.
B. Statement of stockholders’ equity, income statement, and balance sheet.
C. Income statement, statement of stockholders’ equity, and balance sheet.
D. Balance sheet, statement of stockholders’ equity, and income statement.

Answer 3

C. Income statement, statement of stockholders’ equity, and balance sheet.

Question 4

Retained earnings at the end of the year is calculated using:
Group of answer choices

A. Common stock and dividends.
B. Stockholders’ equity, net income, and dividends.
C. Beginning retained earnings, net income, and dividends.
D. Net income and dividends.

Answer 4

C. Beginning retained earnings, net income, and dividends.

Question 5

The two categories of stockholders’ equity usually found in the balance sheet of a corporation are:

A. Assets and liabilities.
B. Revenues and expenses.
C. Common stock and liabilities.
D. Common stock and retained earnings.

Answer 5

D. Common stock and retained earnings.

Question 6

Transactions of a company involving external sources of funding are referred to as:

A. Financing activities.
B. Investing activities.
C. Operating activities.
D. External activities.

Answer 6

A. Financing activities.

Question 7

GAAP is an abbreviation for:

A. Generally authorized accounting procedures.
B. Generally accepted auditing practices.
C. Generally applied accounting procedures.
D. Generally accepted accounting principles.

Answer 7

D. Generally accepted accounting principles.

Question 8

Which of the following is not a balance sheet item?

A. Revenues.
B. Common stock.
C. Assets.
D. Retained earnings.

Answer 8

A. Revenues.

Question 9

The assumption that a business can continue to remain in operation into the future is the:

A. Monetary unit assumption.
B. Economic entity assumption.
C. Going concern assumption.
D. Periodicity assumption.

Answer 9

C. Going concern assumption.

Question 10

What is the primary purpose of financial accounting?

A. Measure the profitability of the company in order to assist employees with making decisions.
B. Measure business transactions and communicate those measures to external users to make decisions.
C. Determine the amount of tax liability owed to the government.
D. Communicate business transactions to internal management.

Answer 10

B. Measure business transactions and communicate those measures to external users to make decisions.

Question 11

When cash payments are made to stockholders, what is the effect on the company’s accounts?

A. Cash decreases and common stock decreases.
B. Cash increases and dividends decrease.
C. Cash decreases and dividends increase.
D. Cash increases and common stock increases.

Answer 11

A. Cash decreases and common stock decreases.

Question 12

Which of the following would increase assets and increase liabilities?

A. Provide services to customers on account.
B. Purchase office supplies on account.
C. Received a utility bill but do not pay for it.
D. Pay dividends to stockholders.

Answer 12

B. Purchase office supplies on account.

Question 13

Which of the accounts are decreased on the debit side and increased on the credit side?

A. Expenses, dividends, and stockholders’ equity.
B. Assets, dividends, and expenses.
C. Liabilities, stockholders’ equity, and revenues.
D. Dividends, liabilities, and assets.

Answer 13

C. Liabilities, stockholders’ equity, and revenues.

Question 14

An account receivable can best be defined as:

A. A payment to the owners.
B. An amount owed by the company.
C. A resource owned by the company.
D. A sale of goods and services.

Answer 14

B. An amount owed by the company.

Question 15

Dividends normally carry a _______ balance and are shown in the _________.

A. Debit; Balance Sheet
B. Credit; Balance sheet
C. Debit; Statement of stockholders’ equity
D. Debit; Income statement

Answer 15

C. Debit; Statement of stockholders’ equity

Question 16

An expense has what effect on the accounting equation?

A. Decrease liabilities.
B. Decrease stockholders’ equity.
C. No effect.
D. Increase assets.

Answer 16

B. Decrease stockholders’ equity.

Question 17

Resources owned by the company that will provide a benefit for more than one year are called:

A. Long-term assets.
B. Current assets.
C. Current liabilities.
D. Revenues.

Answer 17

A. Long-term assets.

Question 18

An example of an adjusting entry would NOT include:

A. Paying salaries to company employees.
B. Recording the use of office supplies.
C. Recording unpaid salaries.
D. Recording the expiration of prepaid insurance.

Answer 18

A. Paying salaries to company employees.

Question 19

Which of the following accounting principles states that expenses are recognized in the same period as the revenues they help to generate?

A. Conservatism.
B. Revenue recognition.
C. Matching principle.
D. Accounting equation.

Answer 19

C. Matching principle.

Question 20

When a company makes an end-of-period adjusting entry which includes a credit to Prepaid Rent, the debit is usually made to:

A. Rent Expense.
B. Cash.
C. Rent Payable.
D. Rent Receivable.

Answer 20

A. Rent Expense.

Question 21

Examples of current liabilities will include the following EXCEPT

A. Deferred revenue
B. Current portion of long-term debt
C. Note payable due in more than a year
D. Accounts payable

Answer 21

C. Note payable due in more than a year

Question 22

Who is responsible for unemployment taxes?

A. Only the employee
B. Neither the employee nor the employer
C. Both the employee and the employer
D. Only the employer

Answer 22

C. Both the employee and the employer

Question 23

Which statement is true about the Future value in reference to the time value of money?

A. It is always the Value
B. It is always both the Value and the Cash Flow
C. It can be either the Value or the Cash Flow
D. It is always the Cash Flow

Answer 23

C. It can be either the Value or the Cash Flow

Question 24

When determining a car payment, the amount borrowed would be the:

A. Future Value
B. Present Value
C. Payment
D. Annuity

Answer 24

B. Present Value

Question 25

If the value is the present value and the investment does not have payments, the factor to use would be the

A. Present value of a single sum
B. Future value of a single sum
C. Present value of an annuity
D. Future value of an annuity

Answer 25

A. Present value of a single sum

Question 26

The reason a bond would issue for less than its face amount is:

A. The stated rate is higher than the market rate.
B. A bond will not issue for less than its face amount.
C. The market rate is higher than the stated rate.
D. The stated rate is equal to the market rate.

Answer 26

C. The market rate is higher than the stated rate.

Question 27

The company issues a 10-year, 7%, $100,000 semiannual bond. The issue price was $98,000. Which statement is true?

A. The company received $100,000.
B. The company’s interest payments are $6,860.
C. The company will pay a total of $98,000 over the life of the bond.
D. The company received $98,000.

Answer 27

D. The company received $98,000.

Question 28

Cash flows from a corporate bond:

A. Only includes the maturity value.
B. Include interest payments computed, face value x market rate.
C. Include the face value paid out every year.
D. Include the face value and the interest payments.

Answer 28

D. Include the face value and the interest payments.

Question 29

What will happen to the bond liability after each interest payment for a bond issued at a discount?

A. It will remain unchanged after each interest payment
B. Cannot be determined
C. It will increase after each interest payment
D. It will decrease after each interest payment

Answer 29

C. It will increase after each interest payment

Question 30

Which is FALSE about stock shares:

A. Treasury stock is the company’s own shares of stock the company purchased from stockholders.
B. Outstanding stock is the number of shares held by investors.
C. Unissued shares are shares that have never been sold to investors.
D. Authorized stock is the number of shares that have been sold to investors.

Answer 30

D. Authorized stock is the number of shares that have been sold to investors.

Question 31

What category shows the amount the owners invested into the company?

A. Treasury stock
B. Paid in capital
C. Retained earnings
D. Dividends

Answer 31

B. Paid in capital

Question 32

Stockholders’ equity is made up of three sections, which is not a section of stockholders’ equity

A. Retained earnings
B. Paid in capital
C. Stock splits
D. Treasury stock

Answer 32

C. Stock splits

Question 33

Comparing a stock dividend with a stock split:

A. Both cause common stock to increase.
B. Both cause stockholders’ equity to decrease.
C. Both cause par value to decrease.
D. Both cause shares outstanding to increase.

Answer 33

D. Both cause shares outstanding to increase.

Question 34

Which is true regarding treasury stock?

A. Treasury stock remains outstanding.
B. Treasury stock is contra to retained earnings.
C. Treasury stock is contra to common stock.
D. Treasury stock is recorded at cost.

Answer 34

D. Treasury stock is recorded at cost.