ACCOUNTING ONLINE EXAM 75 MCQs

A corporation is a legal entity separate from its owners.
 
True
 
False

Corporations are subject to substantially fewer regulations and laws than are proprietorships and partnerships.
 
True
 
False
The only way that a shareholder can affect the management of a corporation is to get elected to the corporation's board of directors.
 
True
 
False
A proxy is a document that gives a designated agent the right to vote a shareholder's stock.
 
True
 
False
Stockholders' equity consists of paid-in capital and retained earnings.
 
True
 
False
Authorized stock is the total number of shares outstanding.
 
True
 
False

If a corporation is authorized to issue 1,000 shares of $50 common stock, it is said to have $50,000 of stock outstanding.
 
True
 
False

Retained earnings generally consist of a company's cumulative net income less any net losses and dividends declared since its inception.
 
True
 
False
The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity to buy additional proportionate shares of common stock issued by the corporation is called a:
 
Preemptive right.
 
Proxy right.
 
Right to call.
 
Financial leverage.
 
Voting right.

Stockholders' equity consists of:
 
Long-term assets.
 
Paid-in capital and retained earnings.
 
Paid-in capital and par value.
 
Retained earnings and cash.
 
Premiums and discounts.

Changes in accounting estimates are:
 
Considered accounting errors.
 
Reported as prior period adjustments.
 
Accounted for with a cumulative "catch-up" adjustment.
 
Extraordinary items.
 
Accounted for in current and future periods.

The dividend yield is computed by dividing:
 
Annual cash dividends per share by earnings per share.
 
Earnings per share by cash dividends per share.
 
Annual cash dividends per share by the market value per share.
 
Market price per share by cash dividends per share.
 
Cash dividends per share by retained earnings.
A stock dividend:
 
Is not a liability on the balance sheet.
 
Does not reduce a corporation's assets and stockholders' equity.
 
Transfers a portion of equity from retained earnings to contributed capital.
 
Does not affect total equity, but does affect the components of equity.
 
All of the options are correct.

The legal contract between the issuing corporation and the bondholders is called the bond indenture.
 
True
 
False
Debentures always have specific assets of the issuing company pledged as collateral.
 
True
 
False

   
Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.
 
True
 
False
A bond's par value is not necessarily the same as its market value.
 
True
 
False

Bonds and long-term notes are similar in that they are typically transacted with multiple lenders.
 
True
 
False
Mortgage bonds are backed only by the good faith and credit of the issuing company.
 
True
 
False
Compound interest means that interest in a second period is based on the total amount borrowed plus the interest accrued in the first period.
 
True
 
False

A lease is a contractual agreement between a lessor and a lessee that grants the lessee the right to use the asset for a period of time in return for cash payment(s) to the lessor.
 
True
 
False
Operating leases are long-term or noncancelable leases in which the lessor transfers substantially all the risks and rewards of ownership to the lessee.
 
True
 
False

Bonds that mature at different dates with the result that the entire principal amount is repaid gradually over a number of periods are known as:
 
Registered bonds.
 
Bearer bonds.
 
Callable bonds.
 
Sinking fund bonds.
 
Serial bonds.
Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:
 
Debentures.
 
Discounted notes.
 
Installment notes.
 
Indentures.
 
Investment notes.

An advantage of bond financing is:
 
Bonds do not affect owners' control.
 
Interest on bonds is tax deductible.
 
Bonds can increase return on equity.
 
It allows firms to trade on the equity.
 
All of the choices are correct.

On January 1, Year 1, Merrill Company borrowed $100,000 on a 10-year, 7% installment note payable. The terms of the note require Merrill to pay 10 equal payments of $14,238 each December 31 for 10 years. The required general journal entry to record the first payment on the note on December 31, Year 1 is:
 
Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238.
 
Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238.
 
Debit Notes Payable $10,000; debit Interest Expense $7,000; credit Cash $17,000.
 
Debit Notes Payable $14,238; credit Cash $14,238.
 
Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238.
Cash equivalents are investments that are readily converted to known amounts of cash and mature within three months.
 
True
 
False

   
  
   
Short-term investments are intended to be converted into cash within the longer of one year or the current operating cycle of the business, and are readily convertible to cash.
 
True
 
False

Long-term investments include investments in land or other assets not used in a company's operations.
 
True
 
False

Debt securities are recorded at cost when purchased.
 
True
 
False

Any cash dividends received from equity securities are recorded as Dividend Expense.
 
True
 
False

A company holds $40,000 of 7% bonds as a held-to-maturity security. Assuming all prior interest entries have been accounted for, the bondholder's journal entry to record receipt of the semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.
 
True
 
False

The equity method with consolidation is used in accounting for long-term investments in equity securities with controlling influence.
 
True
 
False

Comprehensive income refers to all changes in equity during a period except those from owners' investments and dividends.
 
True
 
False
Comprehensive income refers to all changes in equity during a period except those from owners' investments and dividends.
 
True
 
False
Multinational corporations can be U.S. companies with operations in other countries.
 
True
 
False
   

Long-term investments:
 
Are current assets.
 
Include funds earmarked for a special purpose such as bond sinking funds.
 
Must be readily convertible to cash.
 
Are expected to be converted into cash within one year.
 
Include only equity securities.

Short-term investments:
 
Are securities that management intends to convert to cash within the longer of one year or the current operating cycle, and are readily convertible to cash.
 
Include funds earmarked for a special purpose such as bond sinking funds.
 
Include stocks not intended to be converted into cash.
 
Include bonds not intended to be converted into cash.
 
Include sinking funds not intended to be converted into cash

Long-term investments are reported in the:
 
Current asset section of the balance sheet.
 
Intangible asset section of the balance sheet.
 
Non-current section of the balance sheet called long-term investments.
 
Plant assets section of the balance sheet.
 
Equity section of the balance sheet.
Long-term investments include:
 
Investments in bonds and stocks that are not readily convertible to cash.
 
Investments in marketable stocks that are intended to be converted into cash in the short-term.
 
Investments in marketable bonds that are intended to be converted into cash in the short-term.
 
Only investments readily convertible to cash.
 
Investments intended to be converted to cash within one year.
The primary purpose of the statement of cash flows is to report all major cash receipts (inflows) and cash payments (outflows) during a period.
 
True
 
False
The statement of cash flows reports and proves the net change in cash for a reporting period.
 
True
 
False
42To be classified as a cash equivalent, the only criterion an item must meet is that it must be readily convertible to a known amount of cash.
 
True
 
False
The statement of cash flows explains the difference between the beginning and ending balances of cash and cash equivalents.
 
True
 
False
44 Business activities that generate or use cash are classified as operating, investing, or financing activities on the statement of cash flows.
 
True
 
False
45 The full disclosure principle requires that noncash investing and financing activities be disclosed in the financial statements.
 
True
 
False

46 A purchase of land in exchange for a long-term note payable is reported in the investing section of the statement of cash flows.
 
True
 
False
47 A purchase of land in exchange for shares of stock is disclosed on the statement of cash flows or in a note to the statement.
 
True
 
False
48 The statement of cash flows explains how transactions and events impact the end-of-period cash balance to produce the end-of-period net income.
 
True
 
False

49 The statement of cash flows reports:
 
Assets, liabilities, and equity.
 
Revenues, gains, expenses, and losses.
 
Cash inflows and cash outflows for an accounting period.
 
Equity, net income, and dividends.
 
Changes in equity.
50 The statement of cash flows is:
 
Another name for the statement of financial position.
 
A financial statement that presents information about changes in equity during a period.
 
A financial statement that reports the cash inflows and cash outflows for an accounting period, and that classifies those cash flows as operating activities, investing activities, or financing activities.
 
A financial statement that lists the types and amounts of assets, liabilities, and equity of a business on a specific date.
 
A financial statement that lists the types and amounts of the revenues and expenses of a business for an accounting period.

A cash equivalent is an investment that:
 
Is readily convertible to a known amount of cash.
 
Is sufficiently close to its maturity date so its market value is unaffected by interest rate changes.
 
Generally is within 3 months of its maturity date.
 
Is highly liquid.
 
All of the choices are correct.
52 The appropriate section in the statement of cash flows for reporting the purchase of equipment for cash is:
 
Operating activities.
 
Financing activities.
 
Investing activities.
 
Schedule of noncash investing or financing activity.
 
None of these. This is not reported on the statement of cash flows.
Financial statement analysis is the application of analytical tools to general-purpose financial statements and related data for making business decisions.
 
True
 
False

Financial statement analysis lessens the need for expert judgment.
 
True
 
False

The evaluation of company performance and financial condition includes evaluation of (1) past and current performance, (2) current financial position, and (3) future performance and risk.
 
True
 
False
External users of accounting information make the strategic and operating decisions of a company.
 
True
 
False
57 One purpose of financial statement analysis for internal users is to provide information helpful in improving the company's efficiency and effectiveness in providing products and services.
 
True
 
False
58 Financial analysis only refers to the communication of relevant financial information to decision makers.
 
True
 
False

59 Liquidity and efficiency are considered to be building blocks of financial statement analysis.
 
True
 
False
Profitability is the ability to generate positive market expectations.
 
True
 
False
General-purpose financial statements include the (1) income statement, (2) balance sheet, (3) statement of stockholders' equity (or statement of retained earnings), (4) statement of cash flows, and (5) notes to these statements.
 
True
 
False

62 Financial statement analysis:
 
Is the application of analytical tools to general-purpose financial statements and related data for making business decisions.
 
Involves transforming accounting data into useful information for decision-making.
 
Helps users to make better decisions.
 
Helps to reduce uncertainty in decision-making.
 
All of the options are correct.
63 External users of financial information:
 
Are those individuals involved in managing and operating the company.
 
Include internal auditors and consultants.
 
Are not directly involved in operating the company.
 
Make strategic decisions for a company.
 
Make operating decisions for a company.

Internal users of financial information:
 
Are not directly involved in operating a company.
 
Are those individuals involved in managing and operating the company.
 
Include shareholders and lenders.
 
Include directors and customers.
 
Include suppliers, regulators, and the press.
65 Managerial accounting provides financial and nonfinancial information to an organization's managers and other internal decision makers.
 
True
 
False
66 Managerial accounting information can be forwarded to the managers of a company quickly since external auditors do not have to review it, and estimates and projections are acceptable.
 
True
 
False
One difference between financial and managerial accounting is that the external users that use financial information must plan a company's future, but the internal users of managerial accounting information generally must decide whether to invest in or lend to a company.
 
True
 
False
68 Both financial and managerial accounting influence user's decisions and actions.
 
True
 
False

The focus of financial accounting is on an organization's projects, processes, and subdivisions, and the focus of managerial accounting is on the whole organization.
 
True
 
False

The concept of total quality management focuses on continuous improvement.
 
True
 
False
Just-in-time manufacturing is a system where companies manufacture products only after the orders have been received from customers.
 
True
 
False

The main goal of the lean business model is the elimination of waste while satisfying the customer and providing a positive return to the company.
 
True
 
False

73 Managerial accounting is different from financial accounting in that:
 
Managerial accounting is more focused on the organization as a whole and financial accounting is more focused on subdivisions of the organization.
 
Managerial accounting never includes nonmonetary information.
 
Managerial accounting includes many projections and estimates whereas financial accounting has a minimum of predictions.
 
Managerial accounting is used extensively by investors, whereas financial accounting is used only by creditors.
 
Managerial accounting is mainly used to set stock prices.

Which of the following items are management concepts that were created to improve companies' performances?
 
Just-in-time manufacturing.
 
Customer orientation.
 
Total quality management.
 
Continuous improvement.
 
All of the above are ways that management can improve companies' performances.
75 A direct cost is a cost that is:
 
Identifiable as controllable.
 
Variable with respect to the volume of activity.
 
Fixed with respect to the volume of activity.
 
Traceable to a cost object.
 
Sunk with respect to a cost object