Kimmel, Weygandt & Kieso - Sample Exam 1

Name: __________________________ Date: _____________ 1. Which financial statement would best indicate whether the company relies on debt or stockholders' equity to finance its assets? A) Statement of Cash Flows B) Retained Earnings Statement C) Income Statement D) Balance Sheet 2. Stockholders' equity A) is usually equal to cash on hand. B) is equal to liabilities and retained earnings. C) includes retained earning and common stock. D) is shown on the income statement. 3. Which of the following activities involves collecting the necessary funds to support the business? A) Operating B) Investing C) Financing D) Delivering 4. Issuing shares of stock in exchange for cash is an example of a(n) A) delivering activity. B) investing activity. C) financing activity. D) operating activity. 5. Which of the following is not a principal type of business activity? A) Operating B) Investing C) Financing D) Delivering 6. Which of the following is not a common way that managers use the balance sheet? A) To analyze the balances of assets, liabilities, and stockholders' equity throughout the accounting period B) To determine if the cash balance is sufficient for future needs C) To analyze the balance between debt and common stock financing D) To analyze the balance of accounts receivable on the last day of the accounting period

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Kimmel, Weygandt & Kieso - Sample Exam 1

7. Ashton Company began the year with retained earnings of $210,000. During the year, the company recorded revenues of $300,000, expenses of $228,000, and paid dividends of $24,000. What was Ashton's retained earnings at the end of the year? A) $306,000 B) $258,000 C) $486,000 D) $282,000 8. Net income will result during a time period when: A) assets exceed liabilities. B) assets exceed revenues. C) expenses exceed revenues. D) revenues exceed expenses. 9. An annual report includes all of the following except A) management discussion and analysis section. B) notes to the financial statements. C) an auditor's report. D) salary information for all the executives. 10. Stockholders' equity can be described as claims of A) creditors on total assets. B) owners on total assets. C) customers on total assets. D) debtors on total assets. 11. Jennner Corporation began the year with retained earnings of $155,000. During the year, the company issued $210,000 of common stock, recorded expenses of $600,000, and paid dividends of $40,000. If Jenner's ending retained earnings was $165,000, what was the company's revenue for the year? A) $610,000 B) $650,000 C) $820,000 D) $860,000 12. The balance sheet A) summarizes the changes in retained earnings for a specific period of time. B) reports the changes in assets, liabilities, and stockholders' equity over a period of time. C) reports the assets, liabilities, and stockholders' equity at a specific date. D) presents the revenues and expenses for a specific period of time.

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Kimmel, Weygandt & Kieso - Sample Exam 1

13. The financial statement that summarizes the changes in retained earnings for a specific period of time is the A) balance sheet. B) income statement. C) statement of cash flows. D) retained earnings statement. 14. If the retained earnings account decreases from the beginning of the year to the end of the year, then A) net income is less than dividends. B) there was a net income and no dividends. C) additional investments are less than net losses. D) net income is greater than dividends. 15. Why are financial statement users interested in the statement of cash flows? A) It is the easiest financial statement to evaluate. B) It provides information about an important company resource. C) It is the first statement that is presented to users. D) It helps users decide whether assets such as office equipment should be replaced. 16. Which of the following is not a satisfactory statement of the accounting equation? A) Assets = Stockholders' Equity Liabilities. B) Assets = Liabilities + Stockholders' Equity. C) Assets - Liabilities = Stockholders' Equity. D) Assets - Stockholders' Equity = Liabilities. 17. Payments to stockholders are called A) expenses. B) liabilities. C) dividends. D) distributions. 18. Which type of corporate information is not available to investors? A) dividend history B) forecast of cash needs for the upcoming year C) cash provided by investing activities D) beginning cash balance 19. Most business enterprises in the United States are A) proprietorships and partnerships. B) partnerships. C) corporations. D) government units.

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Kimmel, Weygandt & Kieso - Sample Exam 1

20. A small neighborhood barber shop that is operated by its owner would likely be organized as a A) joint venture. B) partnership. C) corporation. D) proprietorship. 21. Edwards Company recorded the following cash transactions for the year: Paid $45,000 for salaries. Paid $20,000 to purchase office equipment. Paid $5,000 for utilities. Paid $2,000 in dividends. Collected $75,000 from customers. What was Edwards' net cash provided by operating activities? A) $25,000 B) $5,000 C) $30,000 D) $23,000 22. Which of the following financial statements is concerned with the company at a point in time? A) Balance sheet. B) Income statement. C) Retained Earnings statement. D) Statement of cash flows. 23. Management's views on the company's short-term debt paying ability, expansion financing, and results of operations are found in the A) auditor's report. B) management discussion and analysis section. C) notes to the financial statements. D) president's state of the company report. 24. Which of the following clarifies information presented in the financial statements, as well as expanding upon it where additional detail is needed? A) Auditor's report B) Management discussion and analysis section C) Notes to the financial statements D) President's state of the company report Use the following to answer question 25: Claire's Accessory Shop started the year with total assets of $70,000 and total liabilities of $40,000. During the year the business recorded $110,000 in revenues, $55,000 in expenses, and dividends of $20,000.

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Kimmel, Weygandt & Kieso - Sample Exam 1

25. Stockholders' equity at the end of the year was A) $60,000. B) $55,000. C) $65,000. D) $35,000. 26. Adherence to the procedure of choosing the accounting method that will be least likely to overstate assets and income is an example of the constraint of A) relevance. B) reliability. C) conservatism. D) comparability. Use the following to answer question 27: Benton Office Supplies Balance Sheet December 31, 2007 Cash $ 65,000 Prepaid Insurance 30,000 Accounts Receivable 50,000 Inventory 70,000 Land held for investment 75,000 Land 90,000 Building $100,000 Less Accumulated Depreciation (20,000) 80,000 Trademark 70,000 Total Assets $530,000 Accounts Payable Salaries Payable Mortgage Payable Total Liabilities $ 70,000 10,000 90,000 $160,000

Common Stock Retained Earnings Total stockholders' equity Total Liabilities and Stockholders' Equity

$120,000 250,000 $370,000 $530,000

27. The total dollar amount of assets to be classified as investments is A) $0. B) $150,000. C) $75,000. D) $180,000. 28. Long-term creditors are usually most interested in evaluating A) liquidity and profitability. B) consistency and profitability. C) liquidity and solvency. D) consistency and solvency.

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Kimmel, Weygandt & Kieso - Sample Exam 1

Use the following to answer question 29: Cain Auto Supplies Balance Sheet December 31, 2007 Cash Prepaid Insurance Accounts Receivable Inventory Land held for investment Land Building $110,000 Less Accumulated Depreciation (20,000) Trademark Total Assets $ 50,000 30,000 40,000 70,000 80,000 75,000 Accounts Payable Salaries Payable Mortgage Payable Total Liabilities $ 55,000 10,000 90,000 $155,000

90,000 70,000 $525,000

Common Stock Retained Earnings Total stockholders' equity Total Liabilities and Stockholders' Equity

$120,000 250,000 $370,000 $525,000

29. The total dollar amount of assets to be classified as investments is A) $0. B) $155,000. C) $80,000. D) $185,000. 30. Which of the following is a measure of liquidity? A) Working capital B) Profit margin C) Earnings per share D) Debt to equity ratio Use the following to answer question 31: Simpson Corporation has current assets of $1,250,000 and current liabilities of $750,000. 31. If they pay $250,000 of their accounts payable what will their new current ratio be? A) 2.0:1 B) 1.7:1 C) 2.5:1 D) 1.25:1

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Kimmel, Weygandt & Kieso - Sample Exam 1

Use the following to answer question 32: Cain Auto Supplies Balance Sheet December 31, 2007 Cash Prepaid Insurance Accounts Receivable Inventory Land held for investment Land Building $110,000 Less Accumulated Depreciation (20,000) Trademark Total Assets $ 50,000 30,000 40,000 70,000 80,000 75,000 Accounts Payable Salaries Payable Mortgage Payable Total Liabilities $ 55,000 10,000 90,000 $155,000

90,000 70,000 $525,000

Common Stock Retained Earnings Total stockholders' equity Total Liabilities and Stockholders' Equity

$120,000 250,000 $370,000 $525,000

32. The total dollar amount of assets to be classified as property, plant, and equipment is A) $335,000. B) $255,000. C) $205,000. D) $165,000. 33. Which of the following would not be classified as a long-term liability? A) Current maturities of long-term debt B) Bonds payable C) Mortgage payable D) Lease liabilities 34. An intangible asset A) derives its value from the rights and privileges it provides the owner. B) is worthless because it has no physical substance. C) is converted into a tangible asset during the operating cycle. D) cannot be classified on the balance sheet because it lacks physical substance. Use the following to answer question 35: Current assets Current liabilities Average assets Total assets $ 7,000 4,000 40,000 30,000 Net income Stockholders' equity Total liabilities $ 12,000 27,000 9,000

Average common shares outstanding was 10,000

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Kimmel, Weygandt & Kieso - Sample Exam 1

35. What is the total amount of working capital? A) $1,000 B) $7,000 C) $2,000 D) $3,000 36. The time period assumption states A) the business will remain in operation for the foreseeable future. B) the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared. C) every economic entity can be separately identified and accounted for. D) only those things that can be expressed in money are included in the accounting records. Use the following to answer question 37: Acme Auto Supplies Balance Sheet December 31, 2007 Cash $ 60,000 Prepaid Insurance 40,000 Accounts Receivable 50,000 Inventory 70,000 Land held for investment 80,000 Land 95,000 Building $100,000 Less Accumulated Depreciation (30,000) 70,000 Trademark 70,000 Total Assets $535,000 Accounts Payable Salaries Payable Mortgage Payable Total Liabilities $ 65,000 10,000 90,000 $165,000

Common Stock Retained Earnings Total stockholders' equity Total Liabilities and Stockholders' Equity

$120,000 250,000 $370,000 $535,000

37. The total dollar amount of assets to be classified as current assets is A) $220,000. B) $150,000. C) $300,000. D) $180,000. 38. Which of the following is not a current liability? A) Wages payable B) Accounts payable C) Taxes payable D) Bonds payable

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Kimmel, Weygandt & Kieso - Sample Exam 1

39. Dividends appear on A) the retained earnings statement only. B) the income statement only. C) both the retained earnings statement and the balance sheet. D) the balance sheet only. 40. The going concern assumption underlies the A) cost principle. B) monetary unit assumption. C) time period assumption. D) full disclosure principle. 41. A useful measure of solvency is the A) current ratio. B) earnings per share. C) return on assets ratio. D) debt to total assets ratio. 42. What organization issues U.S. accounting standards? A) Security Exchange Commission. B) International Accounting Standards Committee. C) International Auditing Standards Committee. D) Financial Accounting Standards Board. Use the following to answer question 43: Cain Auto Supplies Balance Sheet December 31, 2007 Cash Prepaid Insurance Accounts Receivable Inventory Land held for investment Land Building $110,000 Less Accumulated Depreciation (20,000) Trademark Total Assets $ 50,000 30,000 40,000 70,000 80,000 75,000 Accounts Payable Salaries Payable Mortgage Payable Total Liabilities $ 55,000 10,000 90,000 $155,000

90,000 70,000 $525,000

Common Stock Retained Earnings Total stockholders' equity Total Liabilities and Stockholders' Equity

$120,000 250,000 $370,000 $525,000

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Kimmel, Weygandt & Kieso - Sample Exam 1

43. The total amount of working capital is A) $205,000. B) $125,000. C) $50,000. D) $80,000. Use the following to answer question 44: Benton Office Supplies Balance Sheet December 31, 2007 Cash $ 65,000 Prepaid Insurance 30,000 Accounts Receivable 50,000 Inventory 70,000 Land held for investment 75,000 Land 90,000 Building $100,000 Less Accumulated Depreciation (20,000) 80,000 Trademark 70,000 Total Assets $530,000 Accounts Payable Salaries Payable Mortgage Payable Total Liabilities $ 70,000 10,000 90,000 $160,000

Common Stock Retained Earnings Total stockholders' equity Total Liabilities and Stockholders' Equity

$120,000 250,000 $370,000 $530,000

44. The total dollar amount of assets to be classified as property, plant, and equipment is A) $320,000. B) $170,000. C) $245,000. D) $190,000. 45. Office equipment is classified on the balance sheet as A) a current asset. B) property, plant, and equipment. C) an intangible asset. D) a long-term investment. 46. Which financial statement is used to determine cash generated from operations? A) income statement B) statement of operations C) statement of cash flows D) retained earnings statement

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Kimmel, Weygandt & Kieso - Sample Exam 1

47. It is not true that current assets are resources that are expected to be A) realized in cash within one year. B) sold within one year. C) consumed within one year. D) acquired within one year. 48. What is the order in which assets are generally listed on a classified balance sheet? A) current and long-term B) current; property, plant and equipment; long-term investments; intangibles C) current; property, plant and equipment; intangibles; long-term investments D) current; long-term investments; property, plant and equipment, intangibles 49. In a classified balance sheet, assets are usually classified as: A) current assets; long-term assets; property, plant, and equipment; and intangible assets. B) current assets; long-term investments; property, plant, and equipment; and common stocks. C) current assets; long-term investments; tangible assets; and intangible assets. D) current assets; long-term investments; property, plant, and equipment; and intangible assets. 50. Which of the following is not an alternative means of expressing ratio relationships? A) proportion B) qualitative C) rate D) percentage 51. The procedure of transferring journal entries to the ledger accounts is called A) journalizing. B) analyzing. C) reporting. D) posting. 52. During 2007, its first year of operations, Fran's Bakery had revenues of $40,000 and expenses of $22,000. The business paid cash dividends of $12,000. What is the balance in Retained Earnings at December 31, 2007? A) $0. B) $12,000 debit. C) $6,000 credit. D) $18,000 credit.

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Kimmel, Weygandt & Kieso - Sample Exam 1

53. Debits A) increase both assets and liabilities. B) decrease both assets and liabilities. C) increase assets and decrease liabilities. D) decrease assets and increase liabilities. 54. In recording accounting transactions, evidence that a transaction has taken place is obtained from A) source documents. B) the Internal Revenue Service. C) the public relations department. D) the SEC. 55. Which of the following is not part of the recording process? A) Analyzing transactions. B) Preparing a trial balance. C) Entering transactions in a journal. D) Posting journal entries. 56. Transactions in a journal are initially recorded in A) account number order. B) dollar amount order. C) alphabetical order. D) chronological order. 57. Which of the following accounts probably would be listed before the others in a chart of accounts? A) Accumulated depreciationBuildings B) Insurance expense C) Dividends D) Notes Payable 58. The sale of an asset on credit for what it cost A) increases assets and liabilities. B) decreases assets and liabilities. C) leaves total assets unchanged. D) decreases assets and increases liabilities. 59. Management could determine the amounts due from customers by examining which ledger account? A) Service Revenue B) Accounts Payable C) Accounts Receivable D) Supplies

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Kimmel, Weygandt & Kieso - Sample Exam 1

60. A journal: A) contains only asset and liability accounts. B) is a collection of the entire group of accounts maintained by a company. C) provides a chronological record of transactions. D) should show accounts in alphabetical order. 61. A revenue account A) is increased with a debit. B) is decreased with a credit. C) is increased with a credit. D) has a normal balance of a debit. 62. Evidence that would not help with determining the effects of a transaction on the accounts would be a(n) A) cash register sales tape. B) bill. C) advertising brochure. D) check. 63. The normal balance of any account is the A) left side. B) right side. C) side which increases that account. D) side which decreases that account. 64. If a company issues common stock for $25,000 and uses $20,000 of the cash to purchase a truck, A) Assets will be increased by $5,000. B) Equity will be reduced by $25,000. C) Assets will be increased by $25,000. D) Assets will be unchanged. 65. After a business transaction has been analyzed and entered in the book of original entry, the next step in the recording process is to transfer the information to A) the company's bank. B) stockholders' equity. C) ledger accounts. D) financial statements. 66. A list of accounts and their balances at a given time is called a(n) A) journal. B) posting. C) trial balance. D) income statement.

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Kimmel, Weygandt & Kieso - Sample Exam 1

67. Are advanced receipts from customers treated as revenue at the time of receipt? Why or why not? A) Yes, they are treated as revenue at the time of receipt because the company has access to the cash B) No, the amount of revenue cannot be adequately determined until the company completes the work. C) Yes, The intent of the company is to perform the work and the customer is confident that the services will be completed. D) No, revenue cannot be recognized until the work is performed. 68. An investment by the stockholders in a business increases A) assets and stockholders' equity. B) assets and liabilities. C) liabilities and stockholders' equity. D) assets only. 69. Which of the following accounts is increased with a credit? A) Supplies expense B) Supplies C) Sales D) Dividends 70. Receiving payment of a portion of Accounts Receivable will A) not affect total assets. B) increase liabilities. C) increase stockholders' equity. D) decrease net income. 71. A paid dividend A) decreases assets and stockholders' equity. B) increases assets and stockholders' equity. C) increases assets and decreases stockholders' equity. D) decreases assets and increases stockholders' equity. 72. A ledger: A) contains only asset and liability accounts. B) is a collection of the entire group of accounts maintained by a company. C) provides a chronological record of transactions. D) should show accounts in alphabetical order.

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Kimmel, Weygandt & Kieso - Sample Exam 1

73. The final step in the recording process is to transfer the journal information to the A) trial balance. B) financial statements. C) ledger. D) file cabinets. 74. The ledger accounts should be arranged in A) chronological order. B) alphabetical order. C) financial statement order. D) order of appearance in the journal. 75. Which statement about an account is true? A) In its simplest form, an account consists of two parts. B) An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders' equity items. C) There are separate account for specific assets and liabilities but only one account for stockholders' equity items. D) The left side of an account is the credit or decrease side.

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Kimmel, Weygandt & Kieso - Sample Exam 1

Answer Key
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. D C C C D A B D D B B C D A B A C B A D A A B C C C C C C A A D A A D B A D A A D D B B B C D D

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Kimmel, Weygandt & Kieso - Sample Exam 1

49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75.

D B D C C A B D A C C C C C C C C C D A C A A B C C B

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