Exam (elaborations) Test Bank for Fundamentals of Financial Accounting 3rd Edition Phillips, Libby, Libby
Test Bank for Fundamentals of Financial
... [Show More] Accounting 3rd Edition Phillips, Libby, Libby Reporting Investing and Financing Results on the Balance Sheet True / False Questions 1. A transaction is an exchange or event that directly affects the assets, liabilities, or stockholders' equity of a company. True False 2. A transaction can cause only one account on the balance sheet to change. True False 3. If a company uses $100 million in cash to pay off debt, its stockholders' equity will rise $100 million. True False 4. General Motors (GM) signs a new labor agreement that its workers will receive a 5% wage increase next year. This is considered a transaction that affects GM's financial statements in the current year. True False 5. All of a company's business activities have a direct economic effect on the company. True False 6. If total assets increase, then either liabilities or stockholders' equity also must increase. True False 7. Company X issues $40 million in new stock for cash. This does not affect stockholders' equity because as new shares are sold the value of existing shares falls. True False 2-1 Full file at Libby,-Libby 8. Transactions are analyzed from the point of view of the company, not the company's owners. True False 9. You are pleasantly surprised to discover that a popular actress appears on The Tonight Show wearing your company's jeans. Later, your company's sales increase by $500,000 as a result. When the actress appeared on TV, you would have recorded an asset because the TV appearance was expected to bring future economic benefits to your company. True False 10. If the total dollar value of credits to an account exceeds the total dollar value of debits to that account, the ending balance of the account will be a debit balance. True False 11. A company signed an agreement to rent store space from another company. This is an example of a recordable transaction. True False 12. Retained earnings is the cumulative earnings of a company which have not been distributed to owners. True False 13. An internal accounting report called a Trial Balance checks whether recorded debits equal recorded credits. True False 14. The journal is a chronological record of transactions using a debit/credit framework. True False 2-2 Full file at Libby,-Libby 15. The ledger consists of all of the accounts used by a business. True False 16. A business is obliged to repay debt and equity financing. True False 17. The list of names and reference numbers that the company will use when accounting for transactions is called the Chart of Accounts. True False 18. Journal entries show the effects of transactions on the elements of the accounting equation, as well as the amount of the account balances. True False 19. The acquisition of equipment in an exchange for a company's stock would increase the current ratio of the company. the accounts in this transaction is classified as current. True False 20. The current ratio can be used to evaluate a company's ability to pay liabilities in the shortterm, and in general, a lower ratio means better ability to pay. True False 2-3 Full file at Libby,-Libby Multiple Choice Questions 21. How many of the following statements regarding the balance sheet are true? A "classified" balance sheet is one that contains privileged information. All liabilities require that the company sacrifice resources at some time in the future. All companies use an identical list of account names defined by the Financial Accounting Standards Board (FASB). A. None B. One C. Two D. Three 22. How many of the following statements regarding debits and credits are true? A decrease in assets will result in a credit to an asset account. Across all accounts, the total value of all debits must equal the total value of all credits. The total value of all debits to a particular account must equal the total value of all credits to that account. A. None B. One C. Two D. Three 23. How many of the following statements regarding the balance sheet are true? Any item on a balance sheet labeled payable is a liability of that company. Current Assets are listed on the balance sheet in order of how fast they are used up or can be turned into cash. The basic accounting equation must always balance. A. None B. One C. Two D. Three 2-4 Full file at Libby,-Libby 24. How many of the following statements regarding posting and classification are true? Posting journal entries involves copying the dollar amounts from the journal into the ledger. If a $100 debit is erroneously posted to an account as a $100 credit, the accounts will be out of balance by $100. If a $5,000 liability is misclassified as stockholders' equity then the accounting equation will still balance. A. None B. One C. Two 25. How many of the following statements regarding the concepts underlying the balance sheet are true? A company buys land for $5 million dollars in 1983. The land is now worth $15 million. The company should increase the book value of this asset on its balance sheet to reflect its current value. All events affecting the current value of a company are reported on the balance sheet. According to the cost principle, assets are valued at their replacement cost. A. None B. One C. Two D. Three 26. Which of the following would be listed as a long-term asset? A. Cash. B. Supplies. C. Buildings and equipment. D. Total assets. 27. Which of the following would be listed as a current liability? A. Cash in the bank. B. Notes payable due in two years. C. Supplies. D. Accounts payable. 2-5 Full file at Libby,-Libby 28. A long-term liability is one that the company: A. has owed for over one year. B. has owed for over five years. C. will not pay off for over one year. D. will not pay off for over five years. 29. A current asset is one that: A. the company has owned for over one year. B. the company has owned for over five years. C. the company will use up or convert into cash in less than one year. D. the company will use up or convert into cash in less than five years. 30. At the start of the first year of operations, retained earnings on the balance sheet would be: A. equal to zero. B. equal to contributed capital. C. equal to stockholders' equity. D. equal to the negative of liabilities. 31. Account names in the chart of accounts are: A. general purpose and do not indicate the nature of the account. B. not consistent in their use throughout the records. C. linked to account numbers. D. the names mandated for use by the FASB. 2-6 Full file at Libby,-Libby 32. Which line items on the balance sheet would be classified as long term? A. Cash; Supplies; Accounts Payable. B. Property, Plant and Equipment; Notes Payable; Other Assets. C. Supplies; Property, Plant and Equipment; Notes Payable. D. Total Assets; Total Liabilities; Other Assets. 33. How much financing did the stockholders of Purrfect Pets, Inc., directly contribute to the company? A. $117,900. B. $662,100. C. $780,000. D. $1,398,100. 34. Which of the following is not an example of a liability? A. Interest receivable. B. Wages payable. C. Accounts payable D. Income tax payable 2-7 Full file at Libby,-Libby 35. The local branch of the Universal Bank System (UBS) receives money from depositors and lends it to borrowers. Which of the following would be true about UBS's financial statements? A. UBS reports deposits as assets and loans as liabilities. B. UBS reports both deposits and loans as assets. C. UBS reports deposits as liabilities and loans as assets. D. UBS reports both deposits and loans as liabilities. 36. Which of the following is not an example of an asset? A. Notes receivable. B. Supplies. C. Prepaid expenses. D. Retained Earnings. 37. If a company borrows money from a bank and signs an agreement to repay the loan several years from now, in which account would the company report the amount borrowed? A. Contributed Capital. B. Accounts Payable. C. Notes Payable. D. Bonds Payable. 38. The Sweet Smell of Success Fragrance Company borrowed $60,000 from the bank and used all of the money to re-design its new store. Sweet Smell's balance sheet would show this as A. $60,000 under Furnishings & Equipment and $60,000 under Notes Payable. B. $60,000 under Supplies and $60,000 under Accounts Payable. C. $60,000 under Prepaid Expenses and $60,000 under Accrued Liabilities. D. $60,000 under Other Assets and $60,000 under Other Liabilities. 2-8 Full file at Libby,-Libby 39. The Buddy Burger Corporation owes $1.5 million to the Texas Wholesale Meat Company from whom Buddy Burger buys its burger meat. Which account would Buddy Burger use to report the amount owed? A. Cash. B. Accounts Payable. C. Supplies. D. Accounts Receivable. 40. Which of the following describes the classification and normal balance of the retained earnings account? A. Asset, debit B. Stockholders' equity, credit C. Liability, credit D. Stockholders' equity, debit 41. If a company receives $20,000 cash on accounts receivable and uses the cash to pay $20,000 on accounts payable then: A. assets would increase by $20,000 while liabilities would decrease by $20,000. B. liabilities would decrease by $20,000 while stockholders' equity would increase by $20,000. C. assets would decrease by $20,000 while liabilities would decrease by $20,000. D. liabilities would decrease by $20,000 while stockholders' equity would decrease by $20,000. 42. In 1999, the Denim Company bought land that cost $15,000. In 2010, a similar piece of land was bought for $28,000 and the company's existing land was estimated to be worth $18,000. On the balance sheet at the end of 2010, the land that was purchased in 1999 would be reported at: A. $15,000. B. $28,000. C. $18,000. D. the average of the three prices. 2-9 Full file at Libby,-Libby 43. What is the minimum number of accounts that must be involved in any transaction? A. One. B. Two. C. Three. D. No minimum. 44. Transactions include which two types of events? A. Direct events, indirect events. B. Monetary events, production events C. external exchanges, internal events D. past events, future events. 45. A company disposes of $1 million of its assets. Which of the following could not be true? A. Assets remain the same, and liabilities and stockholders' equity both decrease by $1 million. B. Assets decrease by $1 million, liabilities decrease by $1 million, and stockholders' equity is unchanged. C. Assets, liabilities, and stockholders' equity all remain the same. D. Assets decrease by $1 million, and liabilities and stockholders' equity both decrease by $500,000. 46. Your company orders and broadcasts a 30 second ad during the Super Bowl for $1.2 million. It is legally obligated to pay for the ad but has not yet done so. A. This is an internal event and it does NOT affect the balance sheet. B. This is an external event and it does NOT affect the balance sheet. C. This is an internal event that affects the balance sheet. D. This is an external event that affects the balance sheet. 2-10 Full file at Libby,-Libby 47. In part, a transaction affects the accounting equation as follows: Which of the following must be true for this transaction? A. If other assets are unchanged, stockholders' equity must be increasing. B. If other assets are unchanged, stockholders' equity must be decreasing. C. If stockholders' equity is unchanged, another asset must be decreasing. D. If stockholders' equity is unchanged, other assets must be unchanged. 48. A company buys equipment for $500,000 and signs a promissory note for the full amount. How does this transaction affect the accounting equation? A. .Assets: Property and equipment, Cash; Liabilities: no change; Stockholders' Equity: no change. B. Assets: Property and equipment; Liabilities: Notes payable; Stockholders' Equity; no change. C. Assets: Property and equipment; Liabilities: no change; Stockholders' Equity: Retained earnings. D. Assets: Property and equipment; Liabilities: no change; Stockholders' Equity: Contributed capital. 49. Your company pays back $2 million on a loan it had received earlier from a bank. A. Assets are unchanged, liabilities and stockholders' equity both increased by $2 million. B. Assets decrease by $2 million, liabilities decrease by $2 million, stockholders' equity is unchanged. C. Assets are unchanged, liabilities increase by $2 million, contributed capital decreases by $2 million. D. Assets decrease by $2 million, liabilities are unchanged, contributed capital decreases by $2 million. 2-11 Full file at Libby,-Libby 50. A company issues $20 million in new stock. It later uses the cash received to pay off promissory notes. How many different accounts and which account names are affected by these two transactions? A. 3 accounts involved: contributed capital, cash, and notes payable. B. 4 accounts involved: contributed capital, cash, liabilities, and accounts payable. C. 3 accounts involved: cash, assets, and accounts p [Show Less]