Which financial statement is primarily concerned with reporting the financial position of a

business at a particular time?

A. The balance sheet.

B. The income statement.

C. The statement of cash flows.

D. All three statements are concerned with the financial position of a business at a particular

time.

2. Objectives of financial reporting to external investors and creditors include preparing

information about all of the following except:

A. Information used to determine which products to produce.

B. Information about economic resources, claims to those resources, and changes in both

resources and claims.

C. Information that is useful in assessing the amount, timing, and uncertainty of future cash

flows.

D. Information that is useful in making investment and credit decisions.

3- Owners' equity in a business increases as a result of which of the following?

A. Payments of cash to the owners.

B. Losses from unprofitable operation of the business.

C. Earnings from profitable operation of the business.

D. Borrowing from a commercial bank.

4- If a company purchases equipment for $65,000 by issuing a note payable:

A. Total assets will increase by $65,000.

B. Total assets will decrease by $65,000.

C. Total assets will remain the same.

D. The company's total owners' equity will decrease.

5- A strong statement of cash flows indicates that significant cash is being generated by:

A. Operating activities.

B. Financing activities.

C. Investing activities.

D. Effective tax planning

6- Recognizing revenue when it is earned and not when cash is received and recognizing

expenses when the related goods or services are used rather than when they are paid for is

called:

A. Revenue recognition.

B. Accrual accounting.

C. Conservatism.

D. Matching

7- The matching principle is best demonstrated by:

A. Using debits to record decreases in owners' equity and credits to record increases.

B. The equation Assets = Liabilities + Owners' Equity.

C. Allocating the cost of an asset to expense over the periods during which benefits are

derived from the asset.

D. Offsetting the cash receipts of the period with the cash payments made during the period.

8- At the end of October, Flagship Marina received a bill for fuel used in October. Payment is

not due until November 30. This transaction:

A. Should not be recorded in the accounting records until November.

B. Causes a decrease in assets and in owners' equity in November, when the bill is paid.

C. Should be recorded as an expense of October, regardless of the payment date.

D. Is recorded as a liability in October, but is not considered an expense until paid.

9- Prepaid expenses appear:

A. As an expense on the income statement.

B. As an asset on the balance sheet.

C. As a liability on the balance sheet.

D. As a reduction to retained earnings.

10- Net income from the Income Statement appears on:

A. The Balance Sheet.

B. The Retained Earnings Statement.

C. Neither the Balance Sheet nor the Retained Earnings Statement.

D. Both the Balance Sheet and the Retained Earnings Statement.

11- Which of the following should not be classified as inventory in the balance sheet of a large

automobile dealership?

A. Pickup trucks offered for sale.

B. Used cars taken in trade and offered for sale on the company's used-car lot.

C. Spark plugs, oil filters, and other parts which are intended for use by the service

department in repairing and servicing customers' cars.

D. "Company cars" provided to specific company executives for their personal use.

12- In a periodic inventory system, the formula used in computing the cost of goods sold may be

summarized as follows:

A. Beginning inventory + purchases - ending inventory.

B. Beginning inventory + purchases - net sales.

C. Ending inventory + purchases - net sales.

D. Balance in the Cost of Goods Sold account, less the balance in the Inventory Shrinkage

account.

13- In a period of rising prices, a company is most likely to use the FIFO method of pricing

inventory if:

A. Each item in the inventory is unique.

B. Management wants the same unit cost assigned to items sold and items remaining in

inventory.

C. Management's primary objective is to minimize income taxes.

D. Management wants the company's income statement to indicate the highest possible

amounts of gross profit and net income.

14- The term accumulated depreciation, as used in accounting, is best defined as:

A. The portion of a plant asset recognized as expense since the asset was acquired.

B. Funds (or cash) set aside to replace the asset being depreciated.

C. Earnings retained in the business that will be used to purchase another asset when the

present asset is depreciated.

D. An expense of doing business.

15- The inclusion of the intangible asset goodwill in the financial statements of a company

indicates:

A. That the company has a favorable reputation with its customers.

B. A monopoly position in the industry or superior management.

C. An unbroken record of annual earnings and dividends.

D. That the company has purchased a going business at a price in excess of the fair

market value of the net identifiable assets.