MQ, TF, Exercises: financial statements, ratios, entries

CC300 - Final Exam

Multiple Choice Questions

1. If supplies are purchased for cash:
A. total assets will increase
B. total assets will decrease
C. total assets will remain the same
D. stockholders' equity will increase

2. Which of the following is not considered a financial statement:
A. income statement
B. bank statement
C. balance sheet
D. retained earnings statement

3. Which of the following is a stockholders' equity item:
A. contributed capital
B. cash
C. accounts receivable
D. accounts payable

4. Which of the following ratios uses information that comes only from the balance sheet:
A. debt to assets
B. earnings per share
C. inventory turnover
D. accounts receivable turnover

5. Which ratio is a test of liquidity:
A. net profit margin
B. inventory turnover
C. times interest earned
D. debt-to-assets

6. What is the characteristic that allows financial statement users to compare information over time:
A. reliability
B. relevance
C. consistency
D. comparability

7. The statement of cash flows:
A. must be prepared on a daily basis
B. summarizes the operating, financing and investing activities of the entity.
C. is another name for the income statement
D. is a special section of the income statement

8. A stockholder is interested in the ability of a firm to:
A. pay consistent dividends
B. appreciate in share price
C. survive a long period
D. all of the above

9. Which one of the following is not a tool in financial statement analysis:
A. horizontal analysis
B. circular analysis
C. vertical analysis
D. ratio analysis

10. Profit margin is calculated by dividing:
A. sales by cost of goods sold
B. Gross profit by net sales
C. net income by stockholders' equity
D. net income by net sales

11. American Corporation purchased $25,000 of equipment, paying $5,000 in cash and promising to pay $20,000 in 90 days. As a result of this transaction:
A. total assets will increase by $5,000
B. total assets will increase by $20,000
C. total assets will increase by $25,000
D. total assets will increase by $30,000

12. State the accounting equation:
A. Assets + Liabilities = Equity
B. Assets + Equity = Liabilities
C. Assets = Liabilities - Equity
D. Assets = Liabilities + Equity

13. Maroon Company borrowed $100,000 from Valley Bank. How should this transaction be classified on the statement of cash flows:
A. financing activity
B. operating activity
C. investing activity
D. It would not be shown on the statement of cash flows.

14. Internal control involves all of the following except:
A. consistent branding
B. protecting against theft of assets
C. enhancement of the reliability of accounting information
D. promoting efficient and effective operations

True/False Questions

15. If a company purchases $1,000 of supplies for cash, the amount of assets will increase by $1,000.
A. True
B. False

16. The matching principle is a concept that requires revenue to be recognized in the period in which the related expense is incurred.
A. True
B. False

17. Segregation of duties is an internal control.
A. True
B. False

18. The term "financial statements" typically refers to the following four accounting reports: balance sheet, income statement, statement of retained earnings, and the statement of cash flows.
A. True
B. False

19. Trend analysis is a comparison of an individual company with other companies in its industry.
A. True
B. False

20. The inventory turnover ratio is a test of profitability.
A. True
B. False

21. Auditors are responsible for determining whether their clients prepared their financial statements in accordance with GAAP.
A. True
B. False

22. Current liabilities are liabilities that must be paid in 30 days.
A. True
B. False

23. The cash basis of accounting complies with GAAP.
A. True
B. False

24. A statement of cash flows indicates the sources and uses of cash during a period.
A. True
B. False

Exercise 1

Classify each of the following as a(n):
A. operating activity
B. investing activity
C. financing activity
----- 1. Issuance of stocks
----- 2. Sale of equipment
----- 3. Purchase of stock
----- 4. Purchase of land
----- 5. Receipt of a bank loan

Exercise 2

Grand Equipment Company purchased some new furniture for its offices for $5,000 on August 1, 2009. Please prepare the journal entries to record the following events:
1. 9/1/2009 - Purchased furniture for $5,000; paid $2,000 cash and put the balance on credit.
2. 10/1/2009 - Paid the remainder of the balance.

Solution Summary

The solution answers the questions with explanations in most cases. Some answers are cited for better understanding.