Accounting multiple choice questions explained in this solution

Definitional

1. A (n) __________ is a legal entity created by a state, and it is separated from its owners and managers.

2. The ________ _____ lists the firm's assets as well as claims against those assets.

3. The debt ratio, which is the ratio of ______ ___ to ________ ________, measures proportion of funds supplied by creditors.

4. _______ ________ are markets for short-term debt securities, those securities that mature in less than a month.

5. _______ ______ are the markets for long-term debt and corporate stocks.

6. Firms raise capital by selling newly issued securities in the _________ markets, while existing, outstanding securities are traded in the _______________ market.

7. A (n)____________ firm facilitates the transfer of capital between savers and borrowers by acting as the middleman.

8. The _____ __ ______ _______help investors' and creditors assess a company ability to generate positive cash flows and its ability pay liabilities and dividends.

9. To prepare the statement of cash flows, we must have comparative __________ ___________ and an ______________ statement.

10. The ____ _____ allows the firm to plan investments of cash surpluses and to arrange for adequate borrowing to meet forecast cash shortages.

11. The fundamental accounting equations states that Assets = Liabilities +______________

12. Debts owed are called _____________

13. The steps taken by the accountant to maintain he books and prepare statement is referred to as the
_______ _______

14. True or False A savings account earning a guarantee 5% per year in a FDIC insured bank is a good example of an asset that is default-free.

15. True of False A default-free long-term U. S. Treasury bond is an example of a totally riskless investment.

Multiple Choice Questions

1. Which is a source of funds?
a) An increase in inventory
b) An increase in accounts receivable
c) An increase in investments
d) An increase in accounts payable
e) None of the above.

2. Cash, accounts receivable, inventory, and marketable securities are best described by which of the following statements?
a) The productivity of these earning assets can be measured with various turnover ratios.
b) The liquidity of the firm can be assessed with the ratios that employ these current assets.
c) Both a and b are true.
d) The profitability of the firm is substantially determined by these earning assets.
e) All of the above is true.

3. The key input to the cash budget is which of the following?
a) sales forecast
b) production forecast
c) internal forecast
d) external forecast
e) none of the above

4. The financial planning process begins with?
a) operating plans
b) short-term plans
c) budgetary plans
d) production plans
e) none of the above

5. Internal controls are designed to
a) safeguard assets
b) encourage employees to follow company policies
c) promote operational efficiency
d) ensure accurate records
e) all of the above.

6. The best definition of an accounting system is:
a Journals, ledgers, and worksheets.
b Manual or computer-based records used in developing information about an entity for use by managers and also persons outside the organization.
c The personnel, procedures, devices, and records used by an entity to develop accounting information and communicate this information to decision makers.
d The concepts, principles, and standards specifying the information which should be included in financial statements, and how that information should be presented.

7. Suppose a number of your friends have organized a company to develop and sell a new software product. They have asked you to loan them $10,000 to help get the company started, and have promised to repay your $10,000 0plus 15% interest in one year. Of the following, which amount may be described as the return on your investment.
a $10,000.
b $1,500.
c $11,500.
d some other amount.

8 Which of the following is generally not considered one of the general purpose financial statements issued by a corporation.
a Income statement forecast for the coming year.
b Balance sheet.
c Statement of financial position.
d Statement of cash flows.

9. All of the following are characteristics of managerial accounting, except:
a Reports are used primarily by insiders rather than by persons outside of the business entity.
b Its purpose is to assist managers in planning and controlling business operations.
c Information must be developed in conformity with generally accepted accounting principles or with income tax regulations.
d Information may be tailored to assist in specific managerial decisions.

10 Of the following objectives of financial reporting, which is the most specific?
a Provide information useful in assessing amount, timing, and uncertainty of future cash flows.
b Provide information useful in making investment and credit decisions.
c Provide information about economic resources, claims to resources and changes in resources and claims.
d Provide information useful to help the enterprise achieve its goals, objectives, and mission.
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