Test Bank for Financial Accounting for Decision Makers 2nd Edition by DeFond (Cambridge)

TESTBANKSELLER.
COM
Get all Chapter’s Instant download by email at etutorsource@gmail.com
Chapter 1
Financial Accounting
and Business Decisions
Learning Objectives – Coverage by question

True / False Multiple Choice Exercises Problems
LO1 – Explain business

organization and its three 1 1
forms.
LO2 – Describe business

6-8 3
activities.
LO3 – Indicate who uses

TESTBANK .
1-5 2-6 1, 2
accounting information.
LO4 – Explain the accounting

process and generally
9-12 7-9
accepted accounting
principles.
LO5 – Describe the

accounting equation and 13 - 24 10 - 63 4 - 17 1-3
each financial statement.
LO6 – Explain additional

disclosures that accompany 18
financial statements.
LO7 – Discuss technology in

25, 26
accounting.

©Cambridge Business Publishers, 2020
Test Bank, Chapter 1 1-1
TESTBANKSELLER.COM #1 TEST BANKS WHOLESALER

TESTBANKSELLER.COM

Chapter 1: Financial Accounting and Business Decisions
True / False
Topic: Managerial Accounting

LO: 3
1. A major function of managerial accounting is to provide general purpose financial statements for
parties outside the organization.
Answer: False
Rationale: A major function of managerial accounting is to provide management with accounting data
for decisions related to a firm’s operations. Providing general purpose financial statements for parties
outside an organization is a function of financial accounting.
Topic: Ethics
LO: 3
2. It is unusual for U.S. businesses to develop written codes of ethics to guide their employees.
Answer: False
Rationale: It is now commonplace for businesses to develop written codes of ethics to help guide the
behavior of their employees.
Topic: Ethics TESTBANK .

LO: 3
3. An emphasis on short-term profits may contribute to ethical breakdowns within a business.
Answer: True
Topic: Accounting Information Users

LO: 3
4. Financial accounting is designed primarily for decision makers within a company.
Answer: False
Rationale: Financial accounting is designed primarily to provide information to decision makers
outside of a company, while managerial accounting is designed primarily to provide accounting
information for decision makers within a company.
Topic: Ethics and Accounting

LO: 3
5. The goal of the Sarbanes-Oxley Act of 2002 was to increase the level of confidence that external
users have in a company’s financial statements.
Answer: True
Rationale: In the wake of various business scandals, like that involving Enron Corporation, the U.S.
Congress passed the Sarbanes-Oxley Act to improve external user confidence in financial statement
reporting.
1-2 DeFond—Financial Accounting for Decision Makers, 2nd Edition

TESTBANKSELLER.COM

Topic: Investing Activities
LO: 2
6. Investing activities involve the acquiring and disposing of liabilities that a company needs in order to
finance its operating activities.
Answer: False
Rationale: Investing activities are the acquiring and disposing of assets that a company needs for the
production and sale of a company’s products and services.
Topic: Financing Activities

LO: 2
7. Other than operating profit, there are three main sources of external financing.
Answer: False
Rationale: There are two main sources of financing: equity (also called shareholder or owner)
financing and debt (also called creditor or lender) financing.
Topic: Financing and Investing Activities

LO: 2
8. Financing activities are defined as the acquiring and disposing of resources for the purpose of selling
products and services.
Answer: False
Rationale: Financing activities are defined as methods a company uses to raise funds to pay
for resources. Investing activities are defined as the acquiring and disposing of resources for
the
purpose of selling products and services.
TESTB
Topic: Purpose of Accounting
LO: 4
9. The basic purpose of accounting is to provide useful financial information.
Answer: True
Topic: GAAP
LO: 4
10. Generally accepted accounting principles apply to the general-purpose financial statements prepared
primarily for parties outside of an organization.
Answer: True
Topic: Sources of GAAP

LO: 4
11. Federal income tax regulations constitute a primary source of generally accepted accounting
principles.
Answer: False
Rationale: FASB, AICPA, and SEC have been instrumental in the development of GAAP in the United
States.


TESTBANKSELLER.COM

Topic: Sources of GAAP
LO: 4
12. Currently, the organization in the private sector with the primary responsibility for formulating
accounting principles is the Financial Accounting Standards Board.
Answer: True
Topic: Accounting Equation

LO: 5
13. Assets must always equal the sum of liabilities plus stockholders’ equity.
Answer: True
Rationale: The accounting equation is Assets = Liabilities + Stockholders’ Equity. This relation must
always exist.
Topic: Balance Sheet

LO: 5
14. If a company reports retained earnings of $22.4 million on its balance sheet, it will also report $22.4
million in cash.
Answer: False
Rationale: The accounting equation requires total assets to equal the sum of total liabilities
plus stockholders’ equity. That does not imply, however, that liability and stockholders’ equity
accounts relate directly to specific assets.
Topic: Accounting Equation TESTBANK

LO: 5
15. The accounting equation states that the economic resources of an entity are equal to the claims on
those resources.
Answer: True
Topic: Assets
LO: 5
16. The key characteristic of an asset is that it represents a probable future economic benefit owned or
controlled by an entity.
Answer: True
Topic: Net Assets

LO: 5
17. The net assets of an entity are equal to the assets minus the stockholders’ equity.
Answer: False
Rationale: The net assets of an entity are equal to its stockholders’ equity.


TESTBANKSELLER.COM

Topic: Statement of Cash Flows
LO: 5
18. A statement of cash flows reports on the cash flows for operating, investing and financing activities at
a point in time.
Answer: False
Rationale: A statement of cash flows reports on the cash flows for operating, investing, and financing
activities over a period of time.
Topic: Retained Earnings

LO: 5
19. Retained earnings are reported on both the income statement and the statement of stockholders’
equity.
Answer: False
Rationale: Retained earnings are reported on the statement of stocholders’ equity and the balance
sheet. The income statement represents current period earnings.
Topic: Income Statement

LO: 5
20. The income statement is also called the earnings statement.
Answer: True
Topic: Preparing Financial Statements

LO: 5 TESTBANK
21. The income statement, statement of stockholders’ equity, and statement of cash flows are referred to
as period-in-time statements.
Answer: True
Rationale: Specific periods of time are reported on all financial statements, except the balance sheet.
The balance sheet is referred to as a point-in-time statement.

LO: 5
22. The income statement is also known as the statement of financial position.
Answer: False
Rationale: The income statement is also known as the statement of operations, the statement of
income, and the earnings statement. The balance sheet is sometimes referred to as the statement of
financial position.

LO: 5
23. The statement of cash flows reports information about cash flows in two categories: cash received
and cash disbursed.
Answer: False
Rationale: The cash flows are grouped into the three business activities of operating, investing, and
financing.


TESTBANKSELLER.COM

Topic: Relations Among the Financial Statements
LO: 5
24. When financial statements are prepared, the balance sheet is usually prepared first.
Answer: False
Rationale: The income statement is prepared first, followed by the statement of stockholders’ equity,
the balance sheet, and finally the statement of cash flows
Topic: Data Analytics

LO: 7
25. Computational techniques that companies use to reveal patterns, trends and associations in human
behavior are known as data analytics.
Answer: True
Topic: Blockchain
LO: 7
26. Blockchain is a distributed ledger accounting system which requires centralized record keeping.
Answer: False
Rationale: An advantage of a blockchain accounting system is that there is no need for
centralized record keeping.
TESTBANK


TESTBANKSELLER.COM

Multiple Choice
Topic: Business Organizations

LO: 1
Level of Difficulty: EASY
1. Which of the following forms of business organizations exists as a legal entity?
A) A sole proprietorship
B) A partnership
C) A corporation
D) A labor union
Answer: C
Rationale: A corporation is a form of business organization that exists as a legal entity that issues
shares of stock to its owners or shareholders in exchange for cash or other resources.
Topic: Financial Accounting Information Users

LO: 3
2. Which one of the following is not an external user of financial information?
A) Stockholders
B) Creditors
C) Internal Revenue Service
D) Senior company management
Answer: D
Rationale: Decision makers outside the company include stockholders, creditors, and tax
TESTBANK
agencies such as the Internal Revenue Service.
Topic: Managerial Accounting

LO: 3
3. The accounting activities carried out by a firm’s accounting staff primarily to provide management with
accounting data for decisions related to a firm’s operations is referred to as:
A) Financial accounting
B) Managerial accounting
C) Tax accounting
D) Regulatory accounting
E) None of the above
Answer: B


TESTBANKSELLER.COM

Financial Accounting
LO: 3
4. The area of accounting dealing with the preparation of financial statements showing a business’s
results of operations, financial position, and cash flow is referred to as:
A) Financial accounting
B) Managerial accounting
C) Tax accounting
D) Regulatory accounting
Answer: A
Topic: Ethics
LO: 3
Level of Difficulty: MEDIUM
5. Which of the following represents an aspect of the accounting environment that may create ethical
pressures on an accountant?
A) Accountants have access to confidential and sensitive information.
B) The output produced by accountants may have significant financial implications for one or more
persons.
C) Management may emphasize short-run profits.
D) All of the above
Answer: D
TESTBANK
Topic: Ethics
LO: 3
6. Which of the following situations has the potential to create ethical pressure on an accountant?
A) Preparing an individual’s income tax return when much of the supporting documentation is
missing
B) Informing a sales manager that the travel and entertainment expenses turned in by the top
performing sales representative exceed company allowances
C) Discovering that the company has made a mistake in computing refunds granted customers,
causing the refunds to be too small
D) All of the above
Answer: D


TESTBANKSELLER.COM

Topic: Generally Accepted Accounting Principles
LO: 4
7. Which of the following statements is true regarding generally accepted accounting principles (GAAP)?
A) GAAP is a set of laws
B) GAAP is subject to change as conditions warrant
C) Under GAAP, if two companies engage in the same transactions, they must choose the same
accounting methods
D) U.S. GAAP is the same as GAAP in other countries
Answer: B
Rationale: Specific rules under GAAP are altered or new practices are formulated to fit changes in
underlying economic circumstances of business transactions.
Topic: GAAP
LO: 4
8. Currently, the organization with the primary responsibility for formulating U.S. generally accepted
accounting principles is the:
A) American Institute of Certified Public Accountants
B) Securities and Exchange Commission
C) Financial Accounting Standards Board
D) Internal Revenue Service
Answer: C
TESTBANK
Topic: GAAP
LO: 4
9. Generally accepted accounting principles are:
A) Guides to action that apply primarily to the process of managerial accounting
B) Accounting standards enforced by the Internal Revenue Service
C) Accounting standards that never change
D) Guides to action that apply primarily to the process of financial accounting
Answer: D

LO: 5
10. Which of the following is a correct statement of the accounting equation in economic terms?
A) Economic resources = Operating assets + Financial assets
B) Economic resources = Creditor financing + Owner financing
C) Economic resources = Creditor financing – Owner financing
D) Creditor financing = Investing + Operating
Answer: B
Rationale: The accounting equation is assets = liabilities + stockholders’ equity.
Another way of viewing this equation is Economic resources = Creditor Financing + Owner Financing

TESTBANKSELLER.COM

Topic: Liabilities
LO: 5
11. What are the obligations or debts that a business must pay in cash or in goods and services at some
future time because of past transactions or events called and how are they reported?
A) Assets on the balance sheet
B) Stockholders’ equity on the balance sheet
C) Dividends on the statement of stockholders’ equity
D) Liabilities on the balance sheet
Answer: D
Rationale: Liabilities are probable future economic sacrifices resulting from a current or past event.
They are obligations that must be satisfied with a future cash payment or delivery of goods or
services.

LO: 5
12. The accounting equation states:
A) Assets + Liabilities = Stockholders’ Equity
B) Assets = Liabilities - Stockholders’ Equity
C) Assets = Liabilities + Stockholders’ Equity
D) Assets + Stockholders’ Equity = Liabilities
Answer: C
TESTBANK
Topic: Assets
LO: 5
13. The economic resources of an entity that can be usefully expressed in monetary terms are called?
A) Stockholders’ equity
B) Revenues
C) Liabilities
D) Assets
Answer: D
Topic: Assets
LO: 5
14. Which of the following is correct?
A) Ownership is an essential test for an asset.
B) An example of an asset is notes payable.
C) The key characteristic of an asset is that it represents a probable future economic benefit owned
or controlled by the entity.
D) Liabilities represent the interest of the owners in the assets of an entity.
Answer: C

We Don’t reply in this website, you need to contact by email for all chapters
Instant download. Just send email and get all chapters download.
Get all Chapters Solutions Manual/Test Bank Instant Download by email at

etutorsource@gmail.com
You can also order by WhatsApp
https://api.whatsapp.com/send/?phone=%2B447507735190&text&type=ph
one_number&app_absent=0
Send email or WhatsApp with complete Book title, Edition Number and
Author Name.
TESTBANKSELLER.COM

Topic: Liabilities
LO: 5
15. The obligations that an entity must pay in money or services at some time in the future because of
past transactions or events are called?
A) Liabilities
B) Expenses
C) Stockholders’ equity
D) Cost principle
Answer: A
Topic: Liabilities
LO: 5
16. Which of the following is an example of a liability?
A) Supplies
B) Accounts receivable
C) Subscriptions received in advance
D) Prepaid advertising
Answer: C

LO: 5 TESTBANK
17. Which of the following is not a component of the accounting equation?
A) Stockholders’ equity
B) Income statement
C) Liabilities
D) Assets
Answer: B
Topic: Liabilities
LO: 5
18. Which of the following is incorrect?
A) To qualify as a liability, an obligation must be payable in cash or in goods and services.
B) A copyright is an example of a liability.
C) To qualify as a liability, an obligation must be scheduled for settlement at some future time.
D) All of the above
Answer: B


TESTBANKSELLER.COM

Topic: Stockholders’ Equity
LO: 5
19. Stockholders’ equity:
A) Is equal to assets minus liabilities
B) Represents the interest of the owners in the assets of an entity
C) Is equal to the net assets of an entity
D) All of the above
Answer: D
Topic: Liabilities
LO: 5
20. Which of the following is correct?
A) Some liabilities may involve the performance of services.
B) Liabilities are claims on an entity’s assets that remain after the claims of owners have been
settled.
C) To qualify as an asset, a resource must have a physical existence.
D) Accounts receivable and Wages payable are examples of liabilities.
Answer: A

LO: 5 TESTBANK
21. On which statement are assets, liabilities and stockholders’ equity reported?
A) Balance sheet
B) Income statement
C) Statement of retained earnings
D) Statement of cash flows
Answer: A
Rationale: A balance sheet lists amounts for assets, liabilities, and stockholders’ equity at a point in
time.
Topic: Balance Sheet and Income Statement

LO: 5
22. Which of the following items are disclosed on the balance sheet? (Select all that apply.)
A) Inventory
B) Operating expenses
C) Account receivable
D) Equipment
E) Cash payments
Answer: A, C, and D
Rationale: Statement B) is incorrect—operating expenses are found in the income statement, not the
balance sheet. Statement E) is incorrect—cash payments are found on the statement of cash flows.

TESTBANKSELLER.COM

Topic Financial Statement Format
LO: 5
23. Which of the following is not part of the standard heading of a financial statement?
A) The company name
B) The statement title
C) The date or time period of the statement
D) The company’s industry
Answer: D
Rationale: Each financial statement identifies the company, the statement title, and the date or time
period of the statement.
Topic: Expenses
LO: 5
24. Which of the four basic financial statements would contain a line item for expenses?
A) Balance sheet
B) Income statement
Answer: B
Rationale: The income statement reports on the revenues less the expenses over a reporting
period.
Expenses only appear on the income statement.
Topic: Account Classification TESTBANK

LO: 5
25. Which of the following would be reported on a statement of stockholders’ equity?
A) Cash
B) Total expenses
C) Dividends
D) Financing cash flow
Answer: C
Rationale: Dividends are a return of capital to stockholders and are reported on the statement
of stockholders’ equity. Cash is disclosed on the balance sheet. Total expenses is an income
statement amount. Financing cash flow is found on the statement of cash flows.
Topic: Articulation of Financial Statements

LO: 5
26. How are the balance sheet and the statement of cash flows linked?
A) By the cash balance
B) By the amount of total retained earnings
C) By the total shareholder equity
D) By the amount of net income
Answer: A
Rationale: The balance sheet and the statement of cash flows are linked by the cash balance. The
statement of cash flows shows the inflows and outflows of cash during the period. The ending cash
balance is disclosed on the balance sheet.


TESTBANKSELLER.COM

Topic: Financial Statement Linkages
LO: 5
27. Which one of the following is not a key linkage among the four primary financial statements?
A) The expenses in the income statement link to the total liability balance.
B) The statement of cash flows links to ending cash balance reported on the balance sheet.
C) The income statement links to the ending retained earnings in the statement of stockholders’
equity.
D) The statement of retained earnings links to ending retained earnings on the balance sheet.
Answer: A
Rationale: The expenses in the income statement are not linked to the total liability balance. An
unpaid expense might at one point in time be listed as a liability; however, the total of liabilities and
expenses is rarely the same.
Topic: Sales Revenue

LO: 5
28. The increases to a company’s resources that result when goods or services are provided to
customers are called?
A) Assets
B) Liabilities
C) Expenses
D) Revenues
Answer: D
TESTBANK
Topic: Sales Revenue
LO: 5
29. What is the definition of sales revenue?
A) Increases to a company’s resources or decreases to its obligations that result when goods or
services are provided to customers
B) The obligations that an entity must pay at some time in the future because of past transactions or
events
C) Decreases in stockholders’ equity that a firm incurs in the process of earning revenues
D) The economic resources of an entity that can be usefully expressed in monetary terms
Answer: A


TESTBANKSELLER.COM

Topic: Expenses
LO: 5
30. What is the definition of expenses?
A) Increases in stockholders’ equity that a firm earns by providing goods or services for its
customers
B) The obligations that an entity must pay at some time in the future because of past transactions or
events
C) Decreases in a company’s resources that a firm incurs in the process of earning revenues
D) The economic resources of an entity that can be usefully expressed in money terms
Answer: C
Topic: Financial Statements

LO: 5
31. Which of the following is not a basic financial statement?
A) Income statement
B) Statement of cash flows
C) Statement of common stock
D) Balance sheet
Answer: C
TESTBANK
LO: 5
32. An income statement:
A) Reports the results of operations for a period
B) Reports on the events causing a change in stockholders’ equity during a period
C) Presents a firm’s assets, liabilities, and stockholders’ equity on a given date
D) Reports cash inflows and outflows during a period
Answer: A

LO: 5
33. A balance sheet:
A) Reports the results of operations for a period
B) Reports on the events causing a change in stockholders’ equity during a period
C) Presents a firm’s assets, liabilities, and stockholders’ equity as of a given date
D) Reports cash inflows and outflows during a period
Answer: C


TESTBANKSELLER.COM

LO: 5
34. What categories of cash flows are presented in a statement of cash flows?
A) Operating and non-operating
B) Receipts and disbursements
C) Financial and non-financial
D) Operating, investing, and financing
Answer: D

LO: 5
35. Which of the following financial statements is a point in time statement?
A) Income statement
B) Statement of stockholders’ equity
C) Balance sheet
Answer: C

LO: 5
Level of Difficulty: MEDIUM TESTBANK
36. Which of the following financial statements is a period of time statement?
A) Income statement
B) Statement of stockholders’ equity
C) Statement of cash flows
D) All of the above
Answer: D

LO: 5
37. A financial statement either presents information covering a period of time (for example, a month, a
quarter, or a year) or it presents information as of a particular date (for example, December 31, 2019).
Which of the following financial statements presents information as of a particular date?

A) Balance sheet
B) Income statement
D) Both the balance sheet and the income statement
Answer: A


TESTBANKSELLER.COM

LO: 5
38. Which of the following is not contained in the heading for a balance sheet?
A) The name of the company
B) The time period (for example, a month, quarter, or year) covered by the balance sheet
C) The title of the financial statement (that is, balance sheet)
D) The date (a single day) of the balance sheet
Answer: B

LO: 5
39. Which of the following is not contained in the heading for an income statement?
B) The time period (for example, a month, quarter, or year) covered by the income statement
C) The title of the financial statement (that is, income statement)
D) The date (a single day) of the income statement
Answer: D
Topic: Statement of Stockholders’ Equity

LO: 5
Level of Difficulty: MEDIUM TESTBANK
40. Which of the following is not contained in the heading for a statement of stockholders’ equity?
B) The time period (for example, a month, quarter, or year) covered by the statement of
stockholders’ equity
C) The title of the financial statement (that is, statement of stockholders’ equity)
D) The date (a single day) of the statement of stockholders’ equity
Answer: D

LO: 5
41. Which of the following is presented in a statement of stockholders’ equity?
A) Revenues
B) Expenses
C) Net income
D) Assets
Answer: C


TESTBANKSELLER.COM

LO: 5
42. Which of the following is not presented in a statement of stockholders’ equity?
A) Retained earnings at the beginning of the year
B) Revenues
C) Net income
D) Dividends
Answer: B

LO: 5
43. An income statement does not include which of the following?
A) Operating expenses
B) Cost of goods sold
C) Retained earnings
D) Sales
Answer: C
Rationale: Retained earnings represent accumulated earnings from previous accounting periods
that has not been distributed to stockholders as dividends.
TESTBANK
USE THE FOLLOWING INFORMATION FOR QUESTIONS 44-45:
Loweman’s Car Repair Shop started the year with total assets of $30,000, total liabilities of $21,000, and
retained earnings of $9,000. During the year, the business recorded $50,000 in car repair revenues,
$35,000 in expenses, and the company paid dividends of $5,000. The investors did not make any
additional investments during the year.

LO: 5
44. The net income reported by Loweman's Car Repair Shop for the year was:
A) $15,000
B) $20,000
C) $25,000
D) $90,000
Answer: A


TESTBANKSELLER.COM

LO: 5
45. Loweman’s balance of retained earnings at the end of the year was:
A) $19,000
B) $20,000
C) $25,000
D) $35,000
Answer: A

LO: 5
Level of Difficulty: DIFFICULT
46. The transactions carried out by Palmer Corporation during the year caused an increase in total assets
of $25,000 and a decrease in total liabilities of $10,000.
If no additional investment was made by the investors during the year and dividends of $7,000 were
paid, what was the net income for the year?
A) $53,000
B) $42,000
C) $21,000
D) $30,000
Answer: B
TESTBANK
LO: 5
47. The following information was taken from the records of Hart Corporation for the year ended
December 31, 2019.
Advertising expense $20,000

Income tax expense 13,000
Accounts payable 13,450
Dividends paid 15,000
Retained earnings (Jan 1, 2019) 57,860
Consulting fees revenue 100,000
Rent expense 11,700
Supplies expense 16,900
Given the above information, retained earnings as of December 31, 2019 is:
A) $79,245
B) $79,045
C) $55,795
D) $81,260
Answer: D


Author Name.
TESTBANKSELLER.COM

Topic: Financial statements
LO: 5
48. The following information was taken from the records of Tellers Corporation for the month ended
December 31, 2019.
Advertising expense $20,600

Income tax expense 13,000
Dividends paid 14,125
Retained earnings (January 1, 2019) 57,860
Consulting fees revenue 100,000
Rent expense 11,700
Given the above information, net income for the year is:
A) $44,280
B) $35,310
C) $37,800
D) $17,060
Answer: C
USE THE FOLLOWING INFORMATION FOR QUESTIONS 49-53:

TESTBANK
Randy’s Landscaping Company has compiled the following list of account balances of various assets,
liabilities, revenues and expenses on December 31, 2019, the end of its first year of operations.
Common stock 12,600

Salary expense 4,500
Repairs expense 800
Dividends 5,000
Truck 8,500
Equipment 6,300
Notes payable 8,200
Cash 17,600
Service revenue 21,800
Gasoline expense 800


TESTBANKSELLER.COM

LO: 5
49. The net income for Randy’s Landscaping for the year was:
A) $12,800
B) $ 5,700
C) $ 5,900
D) $14,100
Answer: D

LO: 5
50. The total liabilities for Randy’s Landscaping on December 31, 2019 are:
A) $10,700
B) $36,500
C) $18,900
D) $11,700
Answer: A

LO: 5
51. The total assets for Randy’s Landscaping on December 31, 2019 are:
A) $21,600 TESTBANK
B) $32,400
C) $28,100
D) $31,600
Answer: B

LO: 5
52. The retained earnings for Randy’s Landscaping on December 31, 2019 are:
A) $14,100
B) $3,100
C) $700
D) $9,100
Answer: D


TESTBANKSELLER.COM

LO: 5
53. The stockholders’ equity for Randy’s Landscaping on December 31, 2019 is:
A) $22,500
B) $27,700
C) $21,700
D) $22,600
Answer: C

LO: 5
54. Stockholders’ equity and total assets were $32,000 and $79,000 respectively at the beginning of the
period. Assets increased 50% and liabilities decreased 60% during the period.
What is stockholders’ equity at the end of the period?

A) $ 99,700
B) $111,700
C) $ 45,000
D) $ 47,000
Answer: A
TESTBANK
USE THE FOLLOWING INFORMATION FOR QUESTIONS 55-56.
TOTALS January 1 December 31

Current assets $ 5,000 $ 10,000
All other assets 150,000 150,000
Liabilities 25,000 30,000
Common stock 50,000 65,000
Retained earnings 80,000 ?
Additional data: Total expenses for the year were $35,000; Dividends paid during the year were $8,000

LO: 5
55. Using the above table, determine the retained earnings as of December 31?
A) $55,000
B) $65,000
C) $75,000
D) $85,000
Answer: B


TESTBANKSELLER.COM

LO: 5
56. Using the above table, determine the revenues for the year ending on December 31?
A) $16,000
B) $37,000
C) $28,000
D) $22,000
Answer: C

LO: 5
57. Brown Corporation reported the following information at the end of its first year of operations:
Common stock: $20,000

Sales revenue: $105,000
Total assets: $85,000
Total liabilities: $35,000
Dividends: $15,000
What must have been the expenses for the year?

A) $16,000
B) $75,000
C) $60,000
D) $65,000
TESTBANK
Answer: C

LO: 5
58. On January 1, Carlos Slim invested $150,000 to start Slim Corporation. During the year, Slim
Corporation had total revenues of $30,000 and total expenses of $8,000. Cash dividends paid totaled
$6,000.
What was the ending balance in Slim Corporation's retained earnings account at the end of the year?
A) $151,000
B) $ 7,000
C) $157,000
D) $ 16,000
Answer: D


TESTBANKSELLER.COM

LO: 5
59. On January 1, 2019, Samantha Corporation's retained earnings account had a balance of $785,000.
During 2019 the company had revenues of $135,000 and expenses of $93,000. On December 31, the
company’s retained earnings had a balance of $800,500.
Determine the amount of dividends paid during 2019.

A) $42,500
B) $30,750
C) $26,500
D) $13,250
Answer: C

LO: 5
60. Christine Company’s balance sheet as of December 31, 2018 showed total assets of $85,000, and
total liabilities of $35,000, and common stock of $32,000. During 2019, the company reported
revenues of $32,000, expenses of $25,000, and paid dividends of $8,000.
What was the balance in the Retained Earnings account on December 31, 2019?
A) $18,000
B) $14,000
C) $17,000
D) $28,000
TESTBANK
Answer: C

LO: 5
61. Assuming no other changes except a decrease in assets of $50,000, increase in liabilities of $10,000,
and expenses of $60,000, by how much did stockholders' equity increase or decrease and what were
revenues for the period?
A) Stockholders' equity increased $60,000; revenues were $120,000
B) Stockholders' equity decreased $60,000; revenues were $0
C) Stockholders' equity increased $40,000; revenues were $100,000
D) Stockholders' equity decreased $40,000; revenues were $100,000
Answer: B


TESTBANKSELLER.COM

LO: 5
62. At the beginning of the year, the Stephens Company had total assets of $600,000 and total
stockholders’ equity of $230,000. During the year, total assets increased by $90,000, and total
liabilities increased by $42,000. The company also paid $7,000 in dividends.
How much was the net income for the year?

A) $31,000
B) $55,000
C) $48,000
D) $65,000
Answer: B

LO: 5
63. Rebecca Company reported the following the following statement of cash flows:
Cash flows from operating activities ………….......…. $ 84,560

Cash flows from investing activities ……….……........ (42,350)
Cash flows from financing activities…………........... ?
Cash balance at the beginning of year………….....… 12,850
Cash balance at the end of year……………….....…… 80,010
TESTBANK
Determine the missing amount (cash flows from financing activities)?
A) $ 24,950
B) $ 42,210
C) $116,370
D) $ 74,160
Answer: A


TESTBANKSELLER.COM

Exercises
Topic: Financial Accounting Information

LO: 1, 3
1. Match each of the following terms (1-8) on the left with related explanations (A – H) on the right.
1. Stockholders A. Exists to enable stockholders to readily buy

and sell their ownership shares of a
corporation.
2. Sole proprietorship B. A voluntary association of two or more
persons for the purpose of conducting a
business.
3. Managerial accounting C. Independent auditors licensed by the state
in which they do their auditing work.
4. Corporation D. Designed primarily for decision makers
outside of the company.
5. Certified public accountants E. A business owned by one person.
6. Partnership F. Owners of a corporation.
7. Financial accounting G. A legal entity created under the laws of a

state or the federal government.
8. New York Stock Exchange H. Designed primarily for decision makers
within the company.
Answer: TESTBANK
1. F; 2. E; 3. H; 4. G; 5. C; 6. B; 7. D; 8. A
Topic: The Effect of the Sarbanes-Oxley Act

LO: 3
2. Accounting debacles, such as in the case of Enron, brought to light the necessity of accuracy in
financial reporting and accountability of management. Describe how the introduction of the Sarbanes-
Oxley Act has changed the requirements of financial reporting.
Answer:
Congress introduced the Sarbanes-Oxley act with the goal of restoring investor trust by reducing the
likelihood of future accounting scandals. Among the many changes required by this legislation is that
a company’s top management must certify in writing that the financial statements are “fairly
presented”. Also, companies must now report on the effectiveness of internal controls put into place
to help deter errors in the financial reporting process and to detect them should they occur.


TESTBANKSELLER.COM

Topic: Business Activities
LO: 2
3. Describe the three basic business activities conducted by a company in the production and sale of its
products and services.
Answer:
The three activities are financing, operating and investing.
Financing activities include all activities to acquire the capital used to pay for resources such as
property, equipment and buildings. This financing can be either equity financing (i.e., selling shares
of stock to investors), or debt financing (i.e., borrowing money from creditors).
Operating activities refer to the day-to-day activities of producing and selling a product or providing a
service.
Investing activities encompass the steps involved in deciding which assets the company should
acquire or sell with the money that was made available as a result of the financing and operating
activities. These assets are ultimately used in the operating activities to generate sales and
revenues.
Topic: Applying the Accounting Equation

LO: 5
4. Compute the missing financial amounts (a) and (b):
($ millions) Assets Liabilities Stockholders’ Equity

Company A $21,600 (a) $10,500
Company B
TESTBANK,
$40,500 (b)
Answer:
(a) Liabilities = Assets – Stockholders’ Equity = $21,600 - $10,500 = $11,100
(b) Stockholders’ Equity = Assets – Liabilities = $40,500 - $25,600 = $14,900


TESTBANKSELLER.COM

LO: 5
5. The following information appears in Lancelot Corporation’s records at the end of 2019:
Accounts receivable $30,000 Land $80,000

Accounts payable 11,000 Notes payable 15,000
Cash 13,000 Retained earnings ?
Common stock 110,000 Supplies 29,000
a. What is the amount of retained earnings at the end of 2019?

b. If the amount of retained earnings at the beginning of 2019 was $18,000, and $8,000 of dividends
were declared and paid during 2019, what was the net income (loss) for 2019?
Answer:
a. $13,000 cash + $30,000 accounts receivable + $29,000 supplies + $80,000 land
= $152,000 total assets
$152,000 total assets – $15,000 notes payable – $11,000 accounts payable – $110,000 common stock
= $16,000 retained earnings
b. $16,000 – $18,000 = $2,000 decrease in retained earnings;

$2,000 decrease in retained earnings + $8,000 dividends = $6,000 net income
Topic: Constructing a Balance Sheet

LO: 5
6. Cash $ 14,600
Noncash assets 28,400

Other expenses 7,600
Retained earnings 11,500
Liabilities 20,700
Common stock 10,800
Operating cash flow 5,000
Revenues 12,800
Cost of goods sold 3,600
Answer:
Balance Sheet
Assets Liabilities and Stockholders’ Equity
Cash $14,600 Liabilities $20,700
Stockholders’ Equity
Common stock 10,800
Stockholders’ equity 22,300
Total Liabilities and
Total Assets $43,000 Stockholders’ Equity $43,000


Author Name.
TESTBANKSELLER.COM

Topic: Prepare a Balance Sheet
LO: 5
7. Prepare a balance sheet for Hollywood Toys as of July 31, 2019. Hollywood’s account balances for
the month ending July 31, 2019 are:
Cash $ 9,400 Rent expense $8,300

Accounts receivable 18,500 Utilities expense 530
Office supplies 3,100 Salaries expense 16,000
Office equipment 29,150 Misc. expenses 145
Land 70,000 Retained earnings, July 1 12,150
Sales 55,000 Common stock 76,125
Cash dividends 2,650 Accounts payable 14,500
Answer:
HOLLYWOOD TOYS
Balance Sheet
July 31, 2019
Assets
Cash $ 9,400
Accounts receivable 18,500
Office supplies 3,100
Office equipment 29,150
Land 70,000
Total Assets 130,150
TESTBANK
Liabilities
Accounts payable $ 14,500
Stockholders’ Equity
Common stock 76,125
Total Stockholders’ Equity 115,650
Total Liabilities and Stockholders’ Equity $130,150


TESTBANKSELLER.COM

Topic: Preparing a Balance Sheet
LO: 5
8. The following items and amounts are taken from the 2019 financial records of Cynatech:
Prepaid rent…………...…….... $ 3,200 Salaries payable….....................…. $ 5,600

Equipment……………............. 29,000 Common stock…........................… 10,500
Salaries expense……………… 42,000 Supplies expense ……................... 4,700
Utilities expense…………….... 1,100 Retained earnings, Jan. 1, 2019..... 12,000
Dividends……………..……...... 7,600 Insurance expense……................... 2,200
Accounts payable……………… 10,200 Service revenue………................... 75,000
Cash……………………….…... 9,500 Repair expense……….................... 4,500
Accounts receivable……..……. 9,500
Prepare a balance sheet for Cynatech for the year ending December 31, 2019.
Answer:
Net Income: $75,000 – $42,000 – $1,100 – $4,700 – $4,500 – $2,200 = $20,500
Retained earnings, December 31, 2019: $12,000 + $20,500 – $7,600 = $24,900
CYNATECH
Balance Sheet
December 31, 2019
Assets Liabilities
Cash $ 9,500 Accounts payable $10,200
Accounts receivable 5.600
TESTBANK Stockholders’ Equity
Prepaid rent 3,200
Equipment 29,000 Common stock 10,500
Total Liabilities and
Total Assets $51,200 Stockholders’ Equity $51,200


TESTBANKSELLER.COM

Topic: Financial Statements and Financial Statement Components
LO: 5
9. Listed below are definitions of financial statement components and financial statements. From this
list, find the definition of each of the nine terms numbered 1-9. Place the letter of the term’s definition
in the space provided.
a. The ownership claims on the assets of the business.

b. A listing of a firm’s assets, liabilities, and stockholders’ equity on a given date.
c. The decreases in stockholders’ equity that a firm incurs in the process of generating its sales
revenues.
d. The obligations, or debts, that an entity must pay in money or services at some time in the future
because of past transactions or events.
e. Reports information about cash inflows and cash outflows for a specific time period, classified into
operating, investing, and financing activities.
f. The economic resources of an entity that can be expressed in money terms.
g. The increases in stockholders’ equity that results when a firm provides goods and services to its
customers.
h. Presents information on the events causing a change in retained earnings during a period.
i. Reports a business’s sales revenue and expenses for a given period of time.
1. Liabilities 6. Sales revenues
2. Expenses 7. Statement of cash flows

TESTBANK
3. Income statement 8. Assets
4. Balance sheet 9. Stockholders’ equity
5. Statement of stockholders’ equity
Answer:
1. d 6. g
2. c 7. e
3. i 8. f
4. b 9. a
5. h


TESTBANKSELLER.COM

Topic: Links Between Financial Statements
LO: 5
10. To which financial statements are each of the following financial values linked and how are they
linked?
a. Retained earnings
b. Net income
c. Cash
Answer:
a. Retained earnings is linked to the income statement, the statement of stockholders’ equity, and
the balance sheet. Net income on the income statement appears as an amount added to
beginning retained earnings on the statement of stockholders’ equity. Ending retained earnings
on the statement of stockholders’ equity is an amount in the stockholders’ equity section of the
balance sheet.
b. Net income is linked to the income statement and the statement of stockholders’ equity. Net
income on the income statement appears as an amount added to beginning retained earnings on
the statement of stockholders’ equity.
c. Cash is linked to the statement of cash flows and the balance sheet. The ending balance is on
the balance sheet and the changes in cash are shown on the statement of cash flows.
Topic: Compute Retained Earnings

LO: 5
11. At January 31, 2018, Daisy’s retained earnings were $25,110 million. During the year, Daisy reported
net income of $14,333 million and paid a dividend of $1,345 million. Determine Daisy’s retained
TESTBANK
earnings as of January 31, 2019.
Answer:
$25,110 + $14,333 - $1,345 = $38,098 million
Topic: Identifying Sources of Key Financial Data

LO: 5
12. Match each item with the financial statement in which each item would most likely appear: Use (I) for
Income Statement, (B) for Balance Sheet and (CF) for Statement of Cash Flow.
_______ a. Retained earnings

_______ b. Revenue
_______ c. Liabilities
_______ d. Common stock
_______ e. Cost of goods sold
_______ f. Cash from investing activities
_______ g. Net change in cash
Answer:
a. (B) Balance Sheet e. (I) Income Statement
b. (I) Income Statement f. (CF) Statement of Cash Flow
c. (B)
d. (B)
Balance Sheet
Balance Sheet
g. (CF) Statement of Cash Flow


TESTBANKSELLER.COM

LO: 5
13. Prepare a statement of cash flows for Daisy, Inc. for 2019 given its information below (amounts in
millions):
Net income $ 5,433
Cash at beginning of year 9,352
Cash at end of year 11,635
Investing cash flow (4,809)
Net increase in cash 2,283
Financing cash flow ?
Answer:
Operating cash flow + Investing cash flow +Financing cash flow = Net increase in cash
$7,906 - $4,809 + Financing cash flow = $2,283
Financing cash flow = ($814)
Operating cash flow $ 7,906

Financing cash flow (814)
Net increase in cash 2,283
Cash at beginning of year 9,352
Cash at end of year $11,635
TESTBANKSELLER.COM
Topic: Financial Statement Relationships
LO: 5
14. At the beginning of the year, Marchon, Inc. had $8,903 million in assets and $1,380 million in equity.
During the year, Marchon’s assets decreased by $970 million while its equity decreased by $238
million. How much were Marchon’s liabilities at the beginning and end of the year?
Answer:
Beginning liabilities = $8,903 million – $1,380 million = $7,523 million.
Ending liabilities = ($8,903 million – $970 million) – ($1,380 million – $238 million) = $6,791

LO: 5
15. In 2019, Pete’s Pizza reported net income of $5,445 thousand, retained earnings at the beginning of
2019 of $10,456 thousand, and dividends of $1,080 thousand. What is the amount of Pete’s retained
earnings at the end of 2019?
Answer:
Retained earnings beginning + Net income – Dividends = Retained earnings ending
= $10,456 + $5,445 - $1,080
= $14,821 thousand


TESTBANKSELLER.COM

Topic: Preparing Income Statement
LO: 5
16. The following items and amounts are taken from the 2019 financial records of Cynatech. Prepare an
income statement for the year ending December 31, 2019:
Prepaid rent…………................... $ 3,200 Salaries payable……........................ $ 6,000

Equipment………………..........…. 29,000 Common stock…….......................… 10,500
Salaries expense……….......…… 42,000 Supplies expense.............................. 4,700
Utilities expense…….........……… 1,100 Retained earnings, Jan. 1, 2019......... 12,000
Dividends..................................... 7,600 Insurance expense……….................. 8,200
Accounts payable………….......… 10,200 Service revenue………..................... 95,000
Cash…………………………......... 9,900 Repair expense………...................... 4,500
Accounts receivable……….......... 9,500
Answer:
CYNATECH
Income Statement
For Year Ended December 31, 2019
Revenues
Service revenue $95,000
Expenses
Salaries expense $42,000
Utilities expense 1,100
Repair expense TESTBANKSE4,500
LLER.COM
Insurance expense 8,200
Total expense 60,500
Net Income $34,500


TESTBANKSELLER.COM

Topic: Preparing Income Statement from Account Balances
LO: 5
17. On December 31, 2019, Rossmoor Corporation’s records show the following selected amounts.
Cash...................................................... $ 4,500 Cash dividends................................... $ 1,000

Accounts receivable.............................. 2,000 Sales.................................................. 50,000
Office supplies....................................... 6,000 Rent expense..................................... 5,000
Office equipment..................................... 20,000 Salaries expense................................ 26,000
Accounts payable................................... 8,000 Telephone expense............................. 1,500
Common stock........................................ 1,000 Miscellaneous expense...................... 4,000
Retained earnings, Dec. 31, 2019......... 36,000
Prepare an income statement for Rossmoor for the year ending December 31, 2019.
Answer:
ROSSMOOR CORPORATION
Income Statement
Revenues
Sales $50,000
Expenses
Salaries expense $26,000
Rent expense 5,000
Telephone expense 1,500
Miscellaneous expense TESTBANK 4,000
Total expense 36,500
Net Income $13,500
Topic: Other Financial Information

LO: 6
18. In addition to the financial statements, list 3 other sources of information reported to external
stakeholders?
Answer:
• Management Discussion and Analysis (MD&A)
• Auditor’s report
• Notes to financial statements


TESTBANKSELLER.COM

Problems
Topic: Preparation of Financial Statements

LO: 5
1. The following is selected financial information of Harden, Inc. for the year ended December 31, 2019
($ thousands):
Cash assets $21,000

Sales 90,800
Stockholders’ equity 63,700
Financing cash flow (5,400)
Total liabilities 31,300
Expenses 71,500
Net income 19,300
Cash at beginning of the year 10,800
Prepare an income statement, balance sheet and statement of cash flows for Harden, Inc. at
December 31, 2019.
Answer:
HARDEN, INC.
TESTBANKSEStatement
Income LLER.COM
Sales $90,800
Expenses 71,500
Net income $19,300
HARDEN, INC.
Balance Sheet
December 31, 2019
Cash assets $21,000 Total liabilities $31,300
Noncash assets 74, 000 Stockholders’ equity 63,700
Total assets $95,000 Total liabilities and stockholders’ equity $95,000
HARDEN, INC.
Statement of Cash Flows
Operating cash flow $18,000
Financing cash flow (5,400)
Net change in cash 10,200
Cash, January 1
Cash, December 31
10,800
$21,000


TESTBANKSELLER.COM

Topic: Preparation of Balance Sheet and Statement of Cash Flows
LO: 5
2. The following is selected financial information ($ in millions) from Pitney Inc. for 2019.
Cash assets $413

Operating cash flow 824
Sales 5,570
Stockholders’ equity 14
Investing cash flow (172)
Construct a balance sheet and statement of cash flows for Pitney, Inc. for 2019.
Answer:
PITNEY, INC.
Balance Sheet
December 31, 2019
Cash assets $ 413 Total liabilities $8,520
Total liabilities and
Total Assets $8,534 stockholders’ equity $8,534
PITNEY, INC.
Operating cash flow $824
Net change in cash 226
Cash, January 1 187
Cash, December 31 $413


TESTBANKSELLER.COM

Topic: Preparation of the Financial Statements
LO: 5
3. The following is selected financial information for the Campbell Company for the year ended
January 31, 2019 (in millions):
Cash assets $ 51
Sales 8,000
Expenses 6,850
Prepare each of the following financial statements for the Campbell Company in proper form:
• Income statement
• Balance sheet
• Statement of cash flows
Answer:
CAMPBELL COMPANY
Income Statement
For Year Ended January 31, 2019
Sales $8,000
Net income $ 1,150
CAMPBELL COMPANY
Balance Sheet
January 31, 2019
Cash assets $ 51 Total liabilities $5,328
Total liabilities and
Total assets $6,056 stockholders’ equity $6,056
CAMPBELL COMPANY
For Year Ended January 31, 2019
Operating cash flow $1,166
Net change in cash (26)
Cash, January 31, 2018 77
Cash, January 31, 2019 $ 51


Author Name.

Test Bank for Financial Accounting for Decision Makers 2nd Edition by DeFond (Cambridge)

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Test Bank for Financial Accounting for Decision Makers 2nd Edition by DeFond (Cambridge)

Uploaded by

Copyright:

Available Formats

TESTBANKSELLER.

Get all Chapter’s Instant download by email at etutorsource@gmail.com

Learning Objectives – Coverage by question

LO1 – Explain business

LO2 – Describe business

LO3 – Indicate who uses

LO4 – Explain the accounting

LO5 – Describe the

LO6 – Explain additional

LO7 – Discuss technology in

Get all Chapter’s Instant download by email at etutorsource@gmail.com

TESTBANKSELLER.COM #1 TEST BANKS WHOLESALER

Get all Chapter’s Instant download by email at etutorsource@gmail.com

Topic: Managerial Accounting

Topic: Ethics TESTBANK .

Topic: Accounting Information Users

Topic: Ethics and Accounting

TESTBANKSELLER.COM #1 TEST BANKS WHOLESALER

Get all Chapter’s Instant download by email at etutorsource@gmail.com

Topic: Financing Activities

Topic: Financing and Investing Activities

Topic: Sources of GAAP

Get all Chapter’s Instant download by email at etutorsource@gmail.com

TESTBANKSELLER.COM #1 TEST BANKS WHOLESALER

Get all Chapter’s Instant download by email at etutorsource@gmail.com

Topic: Accounting Equation

Topic: Balance Sheet

Topic: Accounting Equation TESTBANK

Topic: Net Assets

Get all Chapter’s Instant download by email at etutorsource@gmail.com

TESTBANKSELLER.COM #1 TEST BANKS WHOLESALER

Get all Chapter’s Instant download by email at etutorsource@gmail.com

Topic: Retained Earnings

Topic: Income Statement

Topic: Preparing Financial Statements

Topic: Income Statement

Topic: Statement of Cash Flows

©Cambridge Business Publishers, 2020

TESTBANKSELLER.COM #1 TEST BANKS WHOLESALER

Get all Chapter’s Instant download by email at etutorsource@gmail.com

Topic: Data Analytics

Get all Chapter’s Instant download by email at etutorsource@gmail.com

TESTBANKSELLER.COM #1 TEST BANKS WHOLESALER

Get all Chapter’s Instant download by email at etutorsource@gmail.com

Topic: Business Organizations

Topic: Financial Accounting Information Users

Topic: Managerial Accounting

Get all Chapter’s Instant download by email at etutorsource@gmail.com

TESTBANKSELLER.COM #1 TEST BANKS WHOLESALER

Get all Chapter’s Instant download by email at etutorsource@gmail.com

Get all Chapter’s Instant download by email at etutorsource@gmail.com

TESTBANKSELLER.COM #1 TEST BANKS WHOLESALER

Get all Chapter’s Instant download by email at etutorsource@gmail.com

Topic: Accounting Equation

TESTBANKSELLER.COM #1 TEST BANKS WHOLESALER

Get all Chapter’s Instant download by email at etutorsource@gmail.com

Topic: Accounting Equation

TESTBANKSELLER.COM #1 TEST BANKS WHOLESALER

Get all Chapters Solutions Manual/Test Bank Instant Download by email at

Get all Chapter’s Instant download by email at etutorsource@gmail.com

Topic: Accounting Equation

Get all Chapter’s Instant download by email at etutorsource@gmail.com

TESTBANKSELLER.COM #1 TEST BANKS WHOLESALER

Get all Chapter’s Instant download by email at etutorsource@gmail.com