Test Bank Latest 4th-Ed Fundamentals of Financial Accounting by Philips


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Test Bank Latest 4th-Ed Fundamentals of Financial Accounting by Philips

Sample Chapter No 1                  

Chapter 01

BusinessDecisions and Financial Accounting


True / False Questions

1. Building a new warehouse is an operating activity.

True    False


2. The payment of dividends is a financing activity.

True    False


3. Daily activities involved in running a business such as buying supplies and paying wages are operating activities.

True    False


4. Creditors are mainly interested in the profitability of a company.

True    False


5. Stockholders are creditors of a company.

True    False


6. All corporations acquire financing by issuing stock for sale on public stock exchanges.

True    False


7. You paid $10,000 to buy 1% of the stock in a corporation that has now gone bankrupt. The company owes $10 million dollars to creditors. As a result of the bankruptcy, you will lose $100,000.

True    False


8. The stockholders’ equity of a company is the difference between assets and liabilities.

True    False


9. A company owes $200,000 on a bank loan. It will be reported as Notes Payable.

True    False


10. Amounts reported on financial statements are sometimes rounded to the nearest million.

True    False


11. Accounts payable, notes payable and wages payable are examples of liabilities.

True    False


12. Dividends are subtracted from revenues on the income statement.

True    False


13. A stock that does not pay a dividend is an undesirable investment.

True    False


14. If a company reports net income on the income statement, then the statement of cash flows must show an increase in cash flows from operating activities for the period.

True    False


15. In the United States, generally accepted accounting principles (GAAP) are established by the PCAOB (Public Company Accounting Oversight Board).

True    False


16. The Securities and Exchange Commission (SEC) is the government agency that has primary authority for setting accounting standards in the U.S.

True    False


17. The Sarbanes-Oxley Act (SOX) requires top management of companies to sign a report certifying that the financial statements are free of error.

True    False


18. Revenue is reported on the income statement only if cash was received at the point of sale.

True    False


19. Generally Accepted Accounting Standards require profitable companies to distribute some of their profits to their stockholders.

True    False


20. Contributed Capital is an asset on the balance sheet.

True    False



Multiple Choice Questions


21. What is the missing amount for Total Liabilities?

A. $3,347,700


B. $1,439,200


C. $1,470,700


D. $1,877,000


22. What is the missing amount for Notes Payable?

A. $207,100


B. $437,800


C. $1,439,200


D. $3,347,700


23. Which one of the following statements regarding the balance sheet for Anonymous Inc. is true?

A. The $207,100 shown on the balance sheet has been distributed to stockholders as dividends.


B. Retained Earnings is misclassified. It should be reported as an Asset.


C. Anonymous, Inc., is owed $310,500 from customers who have purchased goods or services from the company, but have not yet paid for them.


D. The retained earnings reported represents the retained earnings at the beginning of the year.


24. As of September 30, 2013, which source provided more financing for Anonymous, Inc.?

A. owners


B. creditors


C. both provided equal financing


D. neither provided any financing


25. Net Income is

A. the amount the company earned after expenses and dividends are subtracted from revenue.


B. the amount by which assets exceed expenses.


C. the amount by which assets exceed liabilities.


D. the amount by which revenues exceed expenses.


26. Expenses are shown

A. on the income statement in the time period in which they are paid.


B. on the income statement in the time period in which they are incurred.


C. on the balance sheet in the time period in which they are paid.


D. on the balance sheet in the time period in which they are incurred.


27. Cash flow from investing activities includes

A. amounts received from a company’s stockholders for the sale of stock.


B. amounts received from the sale of the company’s office building.


C. amounts paid for dividends to the company’s stockholders.


D. amounts paid for salaries of employees.


28. Which of the following would not represent a financing activity?

A. Paying dividends to stockholders.


B. An investment of capital by the owners.


C. Borrowing money from a bank to purchase new equipment.


D. Buying supplies on account.


29. Operating activities:

A. include interest paid on a bank loan.


B. include the buying or selling of land, buildings, equipment, and other long-term investments.


C. include the repayment of loan proceeds to the bank.


D. include a bank loan to cover the payment of wages, rent and other operating costs.


30. Public corporations:

A. are businesses owned by two or more people, each of whom is personally liable for the debts of the business.


B. are businesses whose stock is bought and sold on a stock exchange.


C. are businesses whose stock is bought and sold privately.


D. are businesses where stock is not used as evidence of ownership.


31. In which of the following organizational forms are the owners not taxed on the business profits?

A. Sole proprietorships.


B. Partnerships.


C. Corporations.


D. Public partnerships.


32. The separate entity assumption means:

A. a company’s financial statements reflect only the business activities of that company.


B. each separate owner’s finances must be revealed in the financial statements.


C. each separate entity that has a claim on a company’s assets must be shown in the financial statements.


D. if the business is a sole proprietorship, the owners’ personal activities are included in the company’s financial statements.


33. Accounting information systems:

A. are summarized by reports that are published to the public.


B. capture and report the results of a business’s operating, investing, and financing activities.


C. monitor business activities only in financial terms.


D. capture only the information that is needed by the owners of the company.


34. Public accountants:

A. provide services to a variety of businesses.


B. may work for the SEC.


C. are government employees.


D. are generally involved in internal auditing, budgeting, and cost accounting.


35. Creditors are:

A. people or organizations who owe money to a business.


B. people or organizations to whom a business owes money.


C. stockholders of a business.


D. customers of a business.


36. Which one of the following is not likely to be a consequence of fraudulent financial reporting?

A. The company’s stock price drops once the fraud is discovered.


B. Innocent accountants who work for the company’s CPA firm lose their jobs.


C. Creditors recover 100% of amounts owed to them.


D. Employees lose their retirement savings.


37. The three main types of business activities measured by financial statements are:

A. selling goods, selling services, and obtaining financing.


B. operating activities, investing activities, and financing activities.


C. hiring, producing, and advertising.


D. generating revenues, paying expenses, and paying dividends.


38. Financing that individuals or institutions have provided to a company is

A. always classified as liabilities.


B. classified as liabilities when provided by creditors and stockholders’ equity when provided by owners.


C. always classified as equity.


D. classified as stockholders’ equity when provided by creditors and liabilities when provided by owners.


39. Financial statements are most commonly prepared:

A. daily.


B. monthly, quarterly and annually.


C. as needed.


D. weekly.


40. Which of the following is true?

A. Companies can choose to end their fiscal year on any date they feel is most relevant.


B. Companies must end their fiscal year on March 31, June 30, September 30, or December 31.


C. Companies can select any date except a holiday to end their fiscal year.


D. Companies must end their fiscal year on December 31.


41. Assets:

A. represent the amounts earned by a company.


B. must equal the liabilities of a company.


C. must equal the stockholders’ equity of the company.


D. represent the resources owned by a company.


42. Which of the following are the three basic elements of the balance sheet?

A. assets, liabilities, and retained earnings.


B. assets, liabilities, and contributed capital.


C. assets, liabilities, and revenues.


D. assets, liabilities, and stockholders’ equity.


43. The Don’t Bite Me Pest Control Company has 10,000 gallons of insecticide supplies on hand that cost $300,000; a bill from the vendor for $100,000 of these supplies has not yet been paid. The company expects to earn $800,000 for its services when it uses the insecticide supplies. The company would report a supplies asset in the amount of

A. $10,000.


B. $200,000.


C. $300,000.


D. $800,000.


44. The Publish or Perish Printing Company paid a dividend to stockholders. This will be reported on the:

A. audit report.


B. income statement.


C. balance sheet.


D. statement of retained earnings.


45. Which of the following is not true?

A. Assets = Liabilities + Stockholders’ Equity


B. Liabilities = Assets – Stockholders’ Equity


C. Stockholders’ Equity + Liabilities – Assets = 0


D. Liabilities – Stockholders’ Equity = Assets


46. Which of the following is not a professional certification for accountants?








Test Bank Latest 4th-Ed Fundamentals of Financial Accounting by Philips

Test Bank Latest 4th-Ed Fundamentals of Financial Accounting by Philips