65 Free Test Bank for Financial ACCT2 2nd Edition by Godwin

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"Matching principle" is best described as:

•  the principle that a revenue should be recorded when a resource has been earned.
•  an increase in resources resulting from the sale of goods or the provision of services.
•  the principle that expenses should be recorded in the period resources are used to generate revenues.
•  an increase in the financing activities.

Ponzi Corporation reported the following information for the year ended December 31, 2012. Net income $100,000; Dividends 6,000; Retained earnings at December 31, 2012 $120,000. Refer to the information provided above for Ponzi Corporation. What was the economic effect of the payment of Ponzi's dividends?

•  The dividend reduced net income for 2012.
•  The dividend should be added to net income if the company's accounting equation is in balance.
•  The dividend reduced total retained earnings.
•  The dividends must be paid whenever Ponzi Corporation reports net income.

Who among the following invest funds into a business and are considered owners?

•  Stockholders
•  Creditors
•  Bankers
•  Lenders

Ponzi Corporation reported the following information for the year ended December 31, 2012. Net income $100,000; Dividends 6,000; Retained earnings at December 31, 2012 $120,000. Refer to the information provided above for Ponzi Corporation. What was the balance of retained earnings at January 1, 2012?

•  $ 21,000
•  $ 26,000
•  $106,000
•  $214,000

The assets and liabilities of the company are $175,000 and $40,000, respectively. Equity should equal:

•  $215,000.
•  $135,000.
•  $175,000.
•  $40,000.

You are a potential creditor and are concerned that a particular company you are ready to give a loan to might have too much debt. Which financial statement would provide you information needed in order to evaluate your concern?

•  Balance sheet
•  Income statement
•  Statement of retained earnings
•  Statement of cash flows

Monaco Lawn Service Company creates revenue each time:

•  it is scheduled for service.
•  amount is paid in full.
•  a lawn is mowed.
•  money is received in advance.

The resources used to generate revenues during a period are called:

•  net income.
•  expenses.
•  revenues.
•  dividends.

Which financial statement would you refer to in order to determine how many resources (assets) the company owns?

•  Balance sheet
•  Statement of retained earnings
•  Income statement
•  Statement of cash flows

Ranger Company has assets of $5,000,000, liabilities of $3,000,000, and retained earnings of $1,200,000. How much is total equity?

•  $8,000,000
•  $2,000,000
•  $3,800,000
•  $1,800,000

Which of the following is the correct date format for the financial statement heading?

•  Balance Sheet for the Year Ended June 30, 2012
•  Statement of Retained Earnings as of December 31, 2012
•  Income Statement for the Year Ending December 31, 2012
•  Statement of Retained Earnings at December 31, 2012

The time period assumption is necessary because:

•  inflation exists and causes confusing swings in financial statement amounts over time.
•  external users of financial statements want accurately-reported net income for a specific period of time.
•  financial statements users expect full disclosure of all events throughout the entire time period translated in dollars.
•  it is required by the federal government.

Which one of the following financial statements reports an entity's financial position at a specific date?

•  Balance sheet
•  Statement of retained earnings
•  Income statement
•  Statement of cash flows

On January 1, 2012, Blackstone Company reported assets of $1,000,000 and liabilities of $600,000. During 2012 assets decreased by $200,000 and Equity decreased $250,000. What is the amount of Equity on December 31, 2012.

•  $650,000
•  $150,000
•  $400,000
•  $800,000

The going concern assumption is concerned with:

•  the company's ability to continue operations long enough to carry out its existing obligations.
•  any information that is capable of influencing the decisions of anyone using the financial statements.
•  measuring ongoing business activities at their exchange price at the time of the initial external transaction.
•  offsetting management's natural optimism by providing a prudent approach to uncertainty in financial statement items.

Which statement demonstrates the financial success or failure of the company over that specific period of time?

•  Statement of changes in stockholders’ equity
•  Statement of retained earnings
•  Balance sheet
•  Income statement

Monaco Lawn Service Company used $250 of fuel to mow customer lawns in June. The fuel was purchased on account and due in July. Fuel Expense should be recorded in:

•  July.
•  June.
•  August.
•  April.

Expenses can be matched against revenues:

•  if the earnings process is not complete.
•  when cash is collected from the sale of products.
•  in the same period as the revenue that it helped to generate.
•  when payment is made for costs related to revenue.

Which of the following underlying assumptions for the conceptual framework is the reason the dollar is used in the preparation of financial statements?

•  Economic entity
•  Continuity
•  Time period
•  Monetary unit

Which of the following is an assumption made in the preparation of the financial statements?

•  Financial statements are prepared for a specific entity that is distinct from the entity's owners.
•  The current market value is assumed to be less relevant than the original cost paid.
•  The preparation of financial statements for a specific time period assumes that the balance sheet covers a designated period of time.
•  Financial statements are prepared assuming that inflation has a distinct effect on the monetary unit.

Which of the following best describes the term "expenses"?

•  The cost of assets used in the investing activities of a business.
•  The amount of interest or claim that the owners have in the business.
•  The future economic resources of a business entity.
•  A decrease in resources resulting from the sale of goods or provision of services.

Which financial statement would you analyze to determine its operating performance for the past year?

•  Balance sheet
•  Statement of retained earnings
•  Income statement
•  Statement of cash flows

Which one of the following events creates a liability for a business?

•  An obligation to pay for goods purchased on credit from a supplier
•  Inventories purchased for cash
•  Amounts invested by the owners
•  Stock sold to the general public

"Economic resources" are known as:

•  assets.
•  liabilities.
•  owners' equity.
•  retained earnings.

What does the phrase, "Revenue is recognized when earned" mean?

•  Revenue is recorded in the accounting records when the goods are received from a supplier, and reported on the income statement when sold to the customer.
•  Revenue is recorded in the accounting records and reported on the income statement when the cash is received from the customer.
•  Revenue is recorded in the accounting records when the goods are sold to a customer, and reported on the income statement when the cash payment is received from the customer.
•  Revenue is recorded in the accounting records and reported on the income statement when goods are sold and delivered to a customer.

Doughtry's Pet Shop reported a net loss of $1,500,000 and total expenses of $2,900,000. How much were the total sales?

•  $4,400,000
•  $1,400,000
•  $2,900,000
•  $1,500,000

The income statement shows:

•  how much profit the company has earned since it began operations.
•  net income equal to the amount of cash on the balance sheet.
•  a summary of the results of operations for a period of time.
•  the liquidity of the company on an annual basis

Which of the following terms best describes a distribution of the net income of a corporation to its owners?

•  Retained earnings
•  Dividends
•  Liquidation of assets
•  Revenue

"Revenues" are best described as:

•  decreases in resources resulting from the purchase of goods for the provision of services.
•  increases in resources resulting from the sale of goods or the provision of services.
•  assets used or consumed in the sale of products or services.
•  an increase in the financing activities section of the statement of cash flows.

Which of the following concepts relates to separating the reporting of business and personal economic transactions?

•  Cost principle
•  Monetary unit assumption
•  Economic entity assumption
•  Objectivity assumption

Which one of the following items appears on a balance sheet?

•  Retained earnings
•  Sales revenue
•  Utilities expense
•  Dividends

Which of the following is a correct fundamental accounting equation?

•  Assets + Liabilities = Equity
•  Assets + Retained Earnings = Equity
•  Assets + Equity = Liabilities
•  Assets = Liabilities + Equity