1. Who are the two primary groups of financial resource providers for a corporation?

a. Accountants and CPA’s

b. Suppliers and vendors
c. Investors and creditors
d. Lenders and Suppliers

2. On which of the following financial statements would you expect to find financing,
operating, and investing activities?
a. Balance sheet
b. Income statement
c. Statement of cash flows
d. Statement of changes in equity

3. Bulldog company purchased land for $50,000 cash. A financial statement impact
of this transaction is
a. assets decreased
b. equity increased
c. cash decreased
d. liabilities increased

4. Which of the following statements is false:

a. Land that increases in value is reported at its increased value on the
balance sheet
b. Information is reliable if it can be independently verified
c. A reporting entity is a business or entity for which financial statements are
prepared
d. Financial accounting focuses on the needs of the external users.

5. Which of the following statements is false:

a. The general ledger is a collection of a company’s financial accounts.
b. The term articulation is used to describe the interrelationship among the
various elements of the financial statements.
c. All transactions that affect retained earnings also impact the income
statement.
d. The information in the ledger accounts is used to prepare the financial
statements.

6. An advantage of the corporate form of business is that

a. it has limited life.
b. its owner’s personal resources are at stake.
c. its ownership is easily transferable via the sale of shares of stock.
d. it is simple to establish..

7. Which of the following is an advantage of corporations relative to partnerships and

sole proprietorships?
a. Reduced legal liability for investors.
b. Harder to transfer ownership.
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 c. Lower taxes.
d. Most common form of organization.

8. Which of the following groups uses accounting information to determine whether the
company’s net income will result in a stock price increase?
a. Investors in common stock
b. Marketing managers
c. Creditors
d. Chief Financial Officer

9. Dividends paid
a. increase assets.
b. increase expenses.
c. decrease revenues.
d. decrease retained earnings.

10. In the annual report, where would a financial statement reader find out if the
company’s financial statements give a fair depiction of its financial position and
operating results?
a. Notes to the financial statements
b. Management discussion and analysis section
c. Balance sheet
d. Auditor’s report

11. In a classified balance sheet, assets are usually classified as:

a. current assets; long-term assets; property, plant, and equipment; and
intangible assets.
b. current assets; long-term investments; property, plant, and equipment; and
common stocks.
c. current assets; long-term investments; tangible assets; and intangible assets.
d. current assets; long-term investments; property, plant, and equipment; and
intangible assets.

12. An intangible asset

a. derives its value from the rights and privileges it provides the owner.
b. is worthless because it has no physical substance.
c. is converted into a tangible asset during the operating cycle.
d. cannot be classified on the balance sheet because it lacks physical
substance.

13. Long-term creditors are usually most interested in evaluating

a. liquidity and profitability.
b. consistency and profitability.
c. liquidity and solvency.
d. consistency and solvency.

14. Accounting information should be neutral in order to enhance

a. reliability.
b. consistency.
c. comparability.
d. relevance.

15. The time period assumption states that

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 a. a transaction can only affect one period of time.
b. estimates should not be made if a transaction affects more than one time
period.
c. adjustments to the enterprise's accounts can only be made in the time period
when the business terminates its operations.
d. the economic life of a business can be divided into artificial time periods.

16. One of the accounting concepts upon which adjustments for prepayments and
accruals are based is
a. matching.
b. cost.
c. monetary unit.
d. economic entity.
17. An accounting time period that is one year in length is called
a. a fiscal year.
b. an interim period.
c. the time period assumption.
d. a reporting period.

18. Which of the statements below is not true?

a. An adjusted trial balance should show ledger account balances.
b. An adjusted trial balance can be used to prepare financial statements.
c. An adjusted trial balance proves the mathematical equality of debits and
credits in the ledger.
d. An adjusted trial balance is prepared before all transactions have been
journalized.

19. The purpose of the post-closing trial balance is to

a. prove that no mistakes were made.
b. prove the equality of the permanent account balances that are carried
forward into the next accounting period.
c. prove the equality of the temporary account balances that are carried forward
into the next accounting period.
d. list all the balance sheet accounts in alphabetical order for easy reference.

20. Ratios are used as tools in financial analysis

a. instead of horizontal and vertical analyses.
b. because they can provide information that may not be apparent from
inspection of the individual components of the financial statements.
c. because even single ratios by themselves are quite meaningful.
d. because they are prescribed by GAAP.

21.In order to be relevant, accounting information must

a. be neutral.
b. be verifiable.
c. help predict future events.
d. be a faithful representation.

22.If ending inventory is overstated, net income and assets will be

Net Income Assets
a. Understated Understated
b. Overstated Overstated

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 c. Understated Overstated
d. Overstated Understated

23.One of the two constraints in accounting is

a. comparability.
b. materiality.
c. reliability.
d. relevance.

24. The assumption that assumes a company will continue in operation long enough to
carry out its existing objectives is the
a. economic entity assumption.
b. going concern assumption.
c. monetary unit assumption.
d. time period assumption.

Designate the terminology that best represents the definition or statement given below
by placing the identifying letter(s) in the space provided. No letter should be used more
than once.

A. Additions and improvements X. Full disclosure principle

B. Allowance method Y. Going-concern assumption
C. Amortization Z. Held-to-maturity securities
D. Available-for-sale securities AA. Internal control
E. Average cost method AB. Last-in, first-out method
F. Book value AC. LIFO reserve
G. Capital expenditure AD. Matching principle
H. Cash debt coverage ratio AE. Materiality
I. Consistency AF. Monetary unit assumption
J. Contra asset account AG. Net purchases
K. Cost method AH. Periodic inventory system
L. Credit memorandum AI. Permanent accounts
M. Debit memorandum AJ. Perpetual inventory system
N. Declining-balance method AK. Ratio analysis
O. Depreciable Cost AL. Relevance
P. Depreciation AM. Reliability
Q. Direct write-off method AN. Revenue expenditure
R. Discontinued operations AO.Revenue recognition principle
S. Earnings per share AP. Stock dividend
T. Economic entity assumption AQ. Stock split
U. Equity method AR. Temporary accounts
V. Extraordinary items AS. Time period assumption
W. First-in, first-out method AT. Units-of-activity method

__AT_1. The periodic write-off of an intangible asset.

_W__ 2. The total amount subject to depreciation.

_AS__3. The principle that efforts be matched with accomplishments.

_V__ 4. An expenditure charged against revenues as an expense when incurred.

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_AR__5. The inventory costing method that assumes that the costs of the earliest goods
purchased are the first to be recognized as cost of goods sold.

_U__ 6. Use of the same accounting principles and methods from period to period by
the same business enterprise.

__AQ_7. A measure of solvency calculated as cash provided by operating activities

divided by average total liabilities.

_T__ 8. An inventory costing method that assumes that the latest units purchased are
the first to be allocated to cost of goods sold.

_AP__9. An assumption that economic events can be identified with a particular unit of
accountability.

_S__10. A characteristic of information that means it is capable of making a difference in

a decision.

_AO__11. An assumption that the economic life of a business can be divided into
artificial time periods.

__R_12. This method of accounting for uncollectible accounts is required when bad
debts are significant in size.

__AN_13. Used by a bank when a previously deposited customer’s check “bounces”

because of insufficient funds.

_Q__14. The assumption that the enterprise will continue in operation long enough to
carry out its existing objectives and commitments.

__AM_15. A system in which detailed records are not maintained and cost of goods
sold is determined only at the end of an accounting period.

_A__16. The methods and measures adopted within a business to safeguard its assets
and enhance the accuracy and reliability of its accounting records.

D___17. Revenue, expense, and dividends accounts whose balances are transferred to
retained earnings at the end of an accounting period.

_B__18. A technique for evaluating financial statements that expresses the relationship
among selected financial statement data.

_E__19. A pro rata distribution of a corporation’s own stock to its stockholders.

__C_20. The net income earned by each share of outstanding common stock.

1. Indicate in the space by letter whether each statement below applies to a sole
proprietorship (S), partnership (P), or corporation (C). More than one answer may be
appropriate.
P____ a. Shared control.
S____ b. Easy to transfer ownership.
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C____ c. No personal liability.
C____ d. Tax advantage.
C____ e. Easier to raise funds.

2. For each of the ratios listed below, indicate by the appropriate code letter, whether it
is a liquidity ratio, a profitability ratio, or a solvency ratio.
Code:
L = Liquidity ratio
P = Profitability ratio
S = Solvency ratio
L____ 1. Price-earnings ratio
P____ 2. Free cash flow
L____ 3. Debt to total assets ratio
P____ 4. Earnings per share
S____ 5. Current ratio

3. Indicate in the space provided by each item whether it would appear on the Income
Statement (IS), Balance Sheet (BS), or Retained Earnings Statement (RE):
a. IS____ Service Revenue g. BS___ Accounts Receivable

b. BS___ Utilities Expense h. RE___ Common Stock

c. IS____ Cash i. RE___ Equipment

d. BS___ Accounts Payable j. BS___ Advertising Expense

e. IS____ Office Supplies k. RE___ Dividends

f. IS____ Wage Expense l. BS___ Notes Payable

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

A. Internal users F. Corporation

B. Management discussion and analysis G. Assets
C. Annual report H. Liabilities
D. Sole proprietorship I. Expenses
E. Dividends J. Investing activities

J____ 1. Distributions of cash from a corporation to its stock holders.

G____ 2. Consumed assets or services.
D____ 3. Ownership is limited to one person.
F____ 4. Officers and others who manage the business.
H____ 5. Creditor claims against the assets of the business.

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J____ 6. A separate legal entity under state laws.
C____ 7. A report prepared by management that presents financial information.
B____ 8. A section of the annual report that presents management’s views.
E____ 9. Future economic benefits.
A____ 10. Involves acquiring the resources necessary to run the business.

Matching Each Ratio with Its Computational Formula

Match each ratio or percentage with its formula by entering the appropriate letter for each
numbered item.

Match with letter Below

A. Net income / Net sales revenue.
B. (Net sales revenue - Cost of goods sold) / Net sales revenue.
C. Current assets / Current liabilities.
D. Cost of goods sold / Average inventory.
E. Net credit sales revenue / Average net receivables.
F. Net cash flows from operating activities / Net income.
G. Net income / Average number of common shares outstanding.
H. Total liabilities / Total assets.
I. (Net income + Interest expense + Income tax expense) / Interest expense.
J. Net cash flows from operating activities / Cash paid for property, plant, and equipment.
K. Current market price per share / Earnings per share.
L. Net income / Average total stockholders’ equity.
M. Net cash flows from operating activities (before interest and taxes) / Interest paid.
N. Net sales revenue / Average net fixed assets.

Ratios or Percentages Formula

__E__1. Net profit margin
__F__2. Inventory turnover ratio
__I__3. Cash coverage ratio
__B__4. Fixed asset turnover
_H___5. Capital acquisitions ratio
__C__6. Return on equity
__J__7. Current ratio
_A___8. Debt-to-assets ratio
_K___9. Price/earnings ratio
_G___10. Receivables turnover ratio
_L___11. Earnings per share
_M___12. Quality of income ratio
__N__13. Gross profit percentage
__D__14. Times interest earned I

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