Multiple Choice Question
1. If a publicly traded company is trying to maximize its perceived value to decision makers external to the corporation, the company is most likely to understate which of the following on its balance sheet?
a. Assets
b. Liabilities
c. Retained Earnings
d. Contributed Capital
2. Which of the following is not an asset?
a. Investments
b. Land
c. Prepaid Expense
d. Contributed Capital
3. Total liabilities on a balance sheet at the end of the year are $150,000, retained earnings at the end of the year is $80,000, net income for the year is $60,000, and contributed capital is $35,000. What amount of total assets would be reported on the balance sheet at the end of the year?
a. $290,000
b. $265,000
c. $205,000
d. $15,000
4. The dual effects concept can best be described as follows:
a. When one records a transaction in the accounting system, at least two effects on the basic accounting equation will result.
b. When an exchange takes place between two parties, both parties must record the transaction.
c. When a transaction is recorded, both the balance sheet and the income statement must be impacted.
d. When a transaction is recorded, one account will always increase and one account will always decrease.
5. The T-account is a tool commonly used for analyzing which of the following?
a. Increases and decreases to a single account in the accounting system.
b. Debits and credits to a single account in the accounting system.
c. Changes in specific account balances over a time period.
d. All of the above describe how T-accounts are used by accountants.
6. Which of the following describes how assets are listed on the balance sheet?
a. In alphabetical order
b. In order of magnitude, lowest value to highest value
c. From most liquid to least liquid
d. From least liquid to most liquid
7. The Cash T-account has a beginning balance of $21,000. During the year, $98,000 was debited and $110,000 was credited to the account. What is the ending balance of Cash?
a. $33,000 debit balance
b. $9,000 credit balance
c. $33,000 credit balance
d. $9,000 debit balance
8. Which of the following statements are true regarding the balance sheet?
1. One cannot determine the true fair market value of a company by reviewing its balance sheet.
2. Certain internally generated assets, such as a trademark, are not reported on a company’s balance sheet.
3. A balance sheet shows only the ending balances, in a summarized format, of all balance sheet accounts in the accounting system as of a particular date.
a. None are true.
b. Statements 1 and 2 only are true.
c. Statements 2 and 3 only are true.
d. All statements are true.
9. At the end of a recent year, The Gap, Inc., reported total assets of $7,564 million, current assets of $4,005 million, total liabilities of $3,177 million, current liabilities of $2,158 million, and stockholders’ equity of $4,387 million. What is its current ratio and what does this suggest about the company?
a. The ratio of 2.38 suggests that The Gap has liquidity problems.
b. The ratio of 1.86 suggests that The Gap has sufficient liquidity.
c. The ratio of 2.38 suggests that The Gap has greater current assets than current liabilities.
d. The ratio of 1.86 suggests that The Gap is not able to pay its short-term obligations with current assets.
10. Which of the following is not a financing activity on the statement of cash flows?
a. When the company lends money.
b. When the company borrows money.
c. When the company pays dividends.
d. When the company issues stock to shareholders.