Multiple Choice Answers

1. The group of users of accounting information charged with achieving the goals of the business is its
a. auditors.
b. investors.
c. managers.
d. creditors.
2. A business organized as a corporation
a. is not a separate legal entity in most states.
b. requires that stockholders be personally liable for the debts of the business.
c. is owned by its stockholders.
d. has tax advantages over a proprietorship or partnership

3. Ending retained earnings for a period is equal to:
a. Beginning retained earnings + Net income + Dividends
b. Beginning retained earnings – Net income – Dividends
c. Beginning retained earnings + Net income – Dividends
d. Beginning retained earnings – Net income + Dividends

4. 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.

5. The proprietorship form of business organization
a. must have at least two owners in most states.
b. generally receives favorable tax treatment relative to a corporation.
c. combines the records of the business with the personal records of the owner.
d. is classified as a separate legal entity.

6. Which of the following groups uses accounting information to determine whether the company can pay its obligations?
a. Investors in common stock
b. Marketing managers
c. Creditors
d. Chief Financial Officer

7. Borrowing money is an example of a(n)
a. delivering activity.
b. financing activity.
c. investing activity.
d. operating activity.

8. Which of the following activities involves collecting the necessary funds to support the business?
a. Operating
b. Investing
c. Financing
d. Delivering

9. Buying assets needed to operate a business is an example of a(n)
a. delivering activity.
b. financing activity.
c. investing activity.
d. operating activity

10. Gibson Company recorded the following cash transactions for the year:
Paid $180,000 for salaries.
Paid $80,000 to purchase office equipment.
Paid $20,000 for utilities.
Paid $8,000 in dividends.
Collected $300,000 from customers.
What was Gibson’s net cash provided by operating activities?
a. $100,000
b. $20,000
c. $120,000
d. $92,000

11. The partnership form of business organization
a. is a separate legal entity.
b. is a common form of organization for service-type businesses.
c. enjoys an unlimited life.
d. has limited liability.
12. Marvin Services Corporation had the following accounts and balances:

Accounts payable $12,000 Equipment $14,000
Accounts receivable 2,000 Land 14,000
Buildings ? Unearned service revenue 4,000
Cash 6,000 Total stockholders’ equity ?

If the balance of the Buildings account was $30,000 and the equipment was sold for $14,000, what would be the total of stockholders’ equity?
a. $26,000
b. $36,000
c. $46,000
d. $50,000

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

14. Net income will result during a time period when:
a. assets exceed liabilities.
b. assets exceed revenues.
c. expenses exceed revenues.
d. revenues exceed expenses.

15. The retained earnings statement would not show
a. the retained earnings beginning balance.
b. revenues and expenses.
c. dividends.
d. the ending retained earning balance.

16. Henson Company began the year with retained earnings of $350,000. During the year, the company recorded revenues of $500,000, expenses of $380,000, and paid dividends of $40,000. What was Henson’s retained earnings at the end of the year?
a. $510,000
b. $430,000
c. $810,000
d. $470,000

17. If total liabilities decreased by $25,000 and stockholders’ equity increased by $5,000 during a period of time, then total assets must change by what amount and direction during that same period?
a. $20,000 decrease
b. $20,000 increase
c. $25,000 increase
d. $30,000 increase
18. The accounting equation may be expressed as:
a. Assets = Stockholders’ Equity – Liabilities.
b. Assets = Liabilities + Stockholders’ Equity.
c. Assets + Liabilities = Stockholders’ Equity.
d. Assets + Stockholders’ Equity = Liabilities.

19. Finney Company began the year by issuing $20,000 of common stock for cash. The company recorded revenues of $185,000, expenses of $160,000, and paid dividends of $10,000. What was Finney’s net income for the year?
a. $15,000
b. $35,000
c. $25,000
d. $45,000

20. Which of the following statements is true?
a. Amounts received from issuing stock are revenues.
b. Amounts paid out as dividends are not expenses.
c. Amounts paid out as dividends are reported on the income statement.
d. Amounts received from issued stock are reported on the income statement.