Exam 1 Review
Supplemental Instruction
Iowa State University / Leader:
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  1. Which of the following best describes the objective of financial accounting?
  2. To capture information about the activities of a company so that it can be reported to decision makers inside the business.
  3. To capture information about the activities of a company so that it can be reported to decision makers outside the business.
  4. To capture information about employee activities of a company so that it can be reported to managers.
  5. To capture information about investors, so a company can decide who to sell stock to.
  6. Which of the following statements regarding the income statement is not correct?
  7. The equation for the income statement is Revenues + Expenses = Net Income
  8. The income statement is usually the first financial statement that is prepared.
  9. When listing the accounts on the income statement, revenues are on top, usually with the largest, most relevant revenue listed first.
  10. It is quite common for a business to provide goods and services in one month and collect cash in a later month.
  11. What are the three types of business activities that can be found on the Statement of Cash Flows?
  12. Buying, selling, and investing
  13. Investing, operating, and spending
  14. Financing, operating, and investing
  15. None of the above
  16. At the end of the year, Carnations Inc. reported net income of $15,250 and paid dividends of $4,300. If they ended the year with Retained Earnings of $20,650, what was their Beginning Retained Earnings?
  17. $10,000
  18. $31,600
  19. $29,000
  20. $9,700
  21. How does the balance sheet connect to the Statement of Cash Flows?
  22. The Cash on the balance sheet is equal to the ending Cash reported on the statement of cash flows.
  23. The Cash on the balance sheet is equal to beginning Cash reported on the statement of cash flows.
  24. The balance sheet and the statement of cash flows are not connected
  25. Both a and b
  26. Which of the following is false regarding GAAP?
  27. GAAP stands for Generally Accepted Accounting Principles
  28. GAAP is a set of rules of accounting created by the Financial Accounting Standards Board for use in the United States
  29. The main goal of GAAP is to ensure companies produce financial information that is useful in decision making
  30. All are true of GAAP
  31. Sarbanes-Oxley requires all of the following except:
  32. Top managers of public companies must sign a report certifying their responsibilities for the financial statements
  33. Companies must maintain an audited system of internal controls to ensure accuracy in the accounting reports
  34. Companies must report financial statements every month
  35. Companies must maintain an independent committee to oversee top management and ensure that they cooperate with auditors
  36. Which of the following is a disadvantage of incorporation?
  37. Ability to raise capital
  38. Double taxation of earnings
  39. Ease of ownership transfer
  40. Limited liability of stockholder
  41. Receiving contributions from stockholders’ is a ______activity that can be found on the statement of cash flow?
  42. Investing
  43. Operating
  44. Financing
  45. None of the above
  46. All of the following are asset accounts except:
  47. Cash
  48. Inventory
  49. Supplies
  50. Accounts Payable
  51. Which of the following best describes current liabilities?
  52. Liabilities that will become noncurrent liabilities
  53. Debts or obligations that will be paid, settled, or fulfilled within 12 months of the balance sheet date
  54. Liquid liabilities
  55. Assets that are turned into liabilities in the current period
  56. According to the Revenue Recognition Principle, when would revenue be recognized if cash was received in a period after goods or services are provided?
  57. In the current period
  58. In the next period
  59. At the end of the year
  60. They must pay when the goods or services are provided
  61. Total current assets, total current liabilities, and total stockholders’ equity can all be found on:
  62. Classified Balance Sheet
  63. Balance Sheet
  64. Income Statement
  65. Classified Income Statement
  66. Target Co. sold 25 purses at $32 each, which customers paid in cash. What is one of the effects of the transaction on the accounting equation?
  67. Cash -$800
  68. Accounts Receivable +800
  69. Sales Revenue +800
  70. Sales Expense -800
  71. Lulu Lemon recorded a transaction that decreased accounts receivables by $23,100 and increased cash by $23,100. Which of the following best describes that transaction?
  72. Lulu Lemon paid insurance costs of $23,100 for the next six months
  73. Lulu Lemon had customers pay $23,100 off on their account balance
  74. Lulu Lemon paid employees wages of $23,100
  75. Lulu Lemon sold $23,100 of stock to investors
  76. What are the effects on the accounting equation if Patchwork received a bill of $578 for utilities in January that they will pay in February?
  77. Prepaid utilities +578; Cash -578
  78. Cash +578; Utilities Expense +578
  79. Prepaid utilities +578; Accounts Payable +578
  80. Utilities Expense +578; Accounts Payable +578
  81. Which of the following has a normal debit balance?
  82. Notes Payable
  83. Expenses
  84. Accounts Payable
  85. Revenues
  86. Thermos Co. had a net profit margin of 12%. What does this tell us about the company’s performance?
  87. For every dollar of revenues, Thermos Co earned 12 cents of income.
  88. For every dollar of net income, Thermos Co earned 12 cents of revenue.
  89. Their net income was 12% higher than last year.
  90. Their revenue was 12% higher than last year.
  91. Which of the following is not a limitation of the income statement?
  92. Does not indicate the amount of cash the company is generating
  93. Does not directly measure the change in the value of a company
  94. Uses estimates to measure income
  95. All of the above are limitations of the income statement
  96. ABC.com paid for advertising for the year on January 1, 2012. Under the accrual method, when would they record the expense?
  97. When cash is paid
  98. When the expense is incurred
  99. When customers see the advertising
  100. When customers that saw the advertising use their website
  101. StoreCo receives $40,000 for newspaper subscriptions. They have delivered 25% of the newspapers to subscribers. What revenue can StoreCo report?
  102. 0
  103. 30,000
  104. 25,000
  105. 10,000
  106. Which of the following accounts would NOT increase with a debit?
  107. Cash
  108. Cost of Goods Sold
  109. Dividends
  110. Sales Revenue
  111. Which of the following situations would result in a $200 credit to cash?
  112. Purchasing machinery for $200
  113. Taking out a loan for $200
  114. Selling machinery for $200
  115. Having net income equal to $200
  116. Which of the following is an advantage of a sole proprietor?
  117. Ease of ownership transfer
  118. Income is only taxed once
  119. Legal protection
  120. Double Taxation
  121. The balance sheet is the company’s financial position at a ______?
  122. Period of time
  123. Annual Report
  124. Point of Time
  125. Financial Year
  126. The current ratio would include all of the following accounts except…
  127. Inventory
  128. Cash
  129. Current Liabilities
  130. Retained Earnings
  131. Which of the following best represents the matching principle?
  132. Prepaying rent for a year
  133. Target expenses electricity costs for next year
  134. Target expenses electricity costs for the current month
  135. Recording revenue for receiving cash before performing a service
  136. Which event would not constitute a transaction?
  137. Dylan orders a T.V.
  138. Jeff’s Pizza delivers the pizza that you ordered and you pay cash
  139. Best Buy pays off a loan from Wells Fargo
  140. Dylan’s T.V. arrives that he orders.