Multiple Choice Answers

Henson Company began the year with retained earnings of $175,000. During the year, the company recorded revenues of $250,000, expenses of $190,000, and paid dividends of $20,000. What was Henson’s retained earnings at the end of the year?
A) $405,000
B) $255,000
C) $235,000
D) $215,000
An auditor is an accounting professional who conducts an independent examination of the accounting data presented by a company.
A) True
B) False
When expenses exceed revenues, which of the following is true?
A) a net income results
B) assets are increased
C) assets equal liabilities
D) a net loss results

4. In a study session, a classmate makes this statement “Dividends are listed as expenses on the income statement.” What is your best response to this statement?
A) You are right. Revenues and expenses are shown on the income statement. Dividends are a cost of generating revenues and that makes them an expense. Why else would a corporation pay dividends?
B) I’ve been struggling with that concept and I feel that dividends should be shown on the balance sheet as assets.
C) Dividends are deducted from retained earnings on the balance sheet.
D) Dividends represent a portion of corporate profits that are paid to the shareholders. They belong on the retained earnings statement.
Owners of business firms are the only people who need accounting information.
A) True
B) False
External users of accounting information are managers who plan, organize, and run a business.
A) True
B) False

7. Elston Company compiled the following financial information as of December 31, 2010:
Revenues 140,000
Common stock 30,000
Equipment 40,000
Expenses 125,000
Cash 35,000
Dividends 10,000
Supplies 5,000
Accounts payable 20,000
Accounts reveivable 15,000
Cetained earnings,1/1/10 75,000

Elston’s retained earnings on December 31, 2010 are:
A) $75,000
B) $80,000
C) $ 5,000
D) $90,000
8. Elston Company compiled the following financial information as of December 31, 2010:
Revenues 140,000
Common Stock 30,000
Euipment 40,000
Expenses 125,000
Cash 35,000
Dividends 10,000
Supplies 5,000
Accounts Payable 20,000
Accounts receivable 15,000
Retailede earnings, 1/1/10 75,000

Elston’s stockholders’ equity on December 31, 2010 is:
A) $120,000
B) $105,000
C) $ 80,000
D) $110,000
Which type of corporate information is readily available to investors?
A) marketing strategies for a product that will be introduced in eighteen months
B) amount of net income retained in the business
C) forecasts of cash needs for the upcoming year
D) financial comparison of operating alternatives
Which activities involve putting the resources of the business into action to generate a profit?
A) Financing
B) Operating
C) Investing
D) Delivering
Accounting communicates financial information about a business to both internal and external users.
A) True
B) False
Expenses are incurred
A) to generate revenues.
B) to produce assets.
C) only on rare occasions.
D) to produce liabilities.
Common stock is reported on the
A) retained earnings statement.
B) income statement.
C) balance sheet.
D) statement of cash flows.
The purchase of equipment is an example of a financing activity.
A) True
B) False
Stockholders’ equity is comprised of
A) common stock and retained earnings.
B) common stock and dividends.
C) dividends and retained earnings.
D) net income and retained earnings.
The group of users of accounting information charged with achieving the goals of the business is its
A) auditors.
B) managers.
C) investors.
D) creditors.
All of the following are advantages for choosing a proprietorship for a business except:
A) A proprietorship is a simple form of business to set up.
B) A proprietorship gives the owner control of the business.
C) Transfer of ownership is easily achieved through stock sales.
D) Proprietorship receive more favorable tax treatment.
The basic accounting equation states that Assets = Liabilities.
A) True
B) False
Dividends paid
A) increase expenses.
B) decrease retained earnings.
C) increase assets.
D) decrease revenues.
Marvin Services Corporation had the following accounts and balances:

Accounts payable 6,000 Equipment 7,000
Accounts receivable 1,000 Land 7,000
Building ? Unearned Revenue 2,000
Cash 3,000 Total Stockholder’s Euilty ?

If the balance of the Building account was $8,000 and $2,000 of Accounts Payable were paid in cash, what would be the total liabilities and stockholders’ equity?
A) $26,000
B) $16,000
C) $24,000
D) $18,000