MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1 Which of the following is not a principal type of business activity? 1 A Financing B Delivering C Investing D Operating 2 Which of the following state

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following is not a principal type of business activity? 1) A) Financing B) Delivering C) Investing D) Operating 2) Which of the following statements is true about a sole proprietorship? 2) A) The owner and the business are separate accounting entities but not separate legal entities. B) The owner and the business are separate legal entities and separate accounting entities. C) Most large businesses in this country are organized as sole proprietorships. D) The owner and the business are separate legal entities but not separate accounting entities. 3) What is the amount of revenue recognized in the statement of earnings by a company that sells goods to customers? 3) A) The amount of cash collected plus the beginning amount of trade receivables. B) The cash collected from customers during the current period. C) Total sales minus beginning amount of trade receivables. D) Total sales, both cash and credit sales, for the period. 4) Which of the following statements is true about the price earnings (P/E) ratio? 4) A) It is a ratio of importance to creditors. B) The P/E ratio increases as profit increases. C) A high P/E ratio indicates investors have little confidence in the future profit potential of the company. D) The P/E ratio could be used to approximate the value investors would be willing to pay for the company's acquisition from existing owners. 5) The statement of financial position 5) A) reports the assets, liabilities, and shareholders' equity at a specific date. B) presents the revenues and expenses for a specific period of time. C) reports the changes in assets, liabilities, and shareholders' equity over a period of time. D) summarizes the changes in retained earnings for a specific period of time. 1 Chapter 1 Fi nancial Accounting, 6th Canadian Edition, 6e Robert Libby, Patricia Libby, Daniel Short, George Kanaan, Maureen Gowing (Test Bank All Chapters, 100% O riginal Verified, A+ Grade) Answers At The End Of Each Chapter 1 / 4

6) Why would Parker Bank, in deciding whether to make a loan to Davis Company, be interested in the amount of liabilities, Davis has on its statement of financial position? 6) A) If Davis already has many other obligations, it might not be able to repay the loan. B) The liabilities represent resources that could be used to repay the loan. C) Parker would be interested in the amount of Davis's assets but not the amount of liabilities. D) Existing liabilities give an indication of how profitable Davis has been in the past. 7) What is the purpose of an audit? 7) A) To endorse the quality of leadership that managers provide for a corporation. B) To establish that a corporation's shares are a sound investment. C) To lend credibility to an entity's financial statements. D) To prove the accuracy of an entity's financial statements. 8) The common characteristic possessed by all assets is 8) A) great monetary value. B) tangible nature. C) future economic benefit. D) long life. 9) What events cause changes in a corporation's retained earnings? 9) A) Profit issuance of shares, and borrowing from a bank. B) Profit or loss and declaration of dividends. C) Declaration of dividends and purchase of new machinery. D) Declaration of dividends and issuance of shares to new shareholders. 10) What form does financial accounting information provided by an entity to decision makers generally take? 10) A) Various forecasts and performance reports. B) Comparisons between the company and its competitors. C) An analysis of changes in the price of a corporation's shares. D) Financial statements. 11) What results from the purchase of goods or services on credit and from borrowing? 11) A) Liabilities. B) Revenues. C) Assets. D) Share capital. 12) Which financial statement for a business would you look at to determine the company's performance during an accounting period? 12) A) Statement of changes in equity. B) Statement of earnings. C) Statement of cash flows. D) Statement of financial position. 2 2 / 4

13) On January 1, 20X1, two individuals invested $150,000 each to form Hornbeck Corporation. Hornbeck had total revenues of $15,000 during 20X1 and $40,000 during 20X2. Total expenses for the same periods were $8,000 and $22,000, respectively. Cash dividends paid out to shareholders totaled $6,000 in 20X1 and $12,000 in 20X2. What was the ending balance in Hornbeck's retained earnings account at the end of 20X1 and 20X2? 13) A) $301,000 and $306,000 respectively. B) $1,000 and $7,000, respectively. C) $1,000 and $6,000 respectively. D) $7,000 and $19,000 respectively. 14) On the statement of financial position, assets may be presented 14) A) in alphabetical order B) in order of reverse liquidity C) either in order of liquidity or in order of reverse liquidity D) in order of liquidity 15) Which of the following are the two primary components of shareholders' equity? 15) A) Short term debt and retained earnings B) Non-current assets and liabilities C) Contributed capital and Retained earnings. D) Long-term debt and retained earnings. 16) Why is the operating activities section often believed to be the most important part of a statement of cash flows? 16) A) It indicates a company's ability to generate cash from sales to meet current cash needs. B) It gives the most information about how operations have been financed. C) It shows the net increase or decrease in cash during the period. D) It shows the dividends that have been paid to shareholders. 17) Kamil's Car Repair Shop Ltd. started the year with total assets of $70,000 and total liabilities of $40,000. During the year, the business recorded $100,000 in car repair revenues, $65,000 in expenses, and dividends of $5,000. Shareholders' equity at the end of the year was 17) A) $75,000. B) $70,000. C) $60,000. D) $65,000. 18) Allentown Corporation has on its statement of financial position the following amounts: Total assets of $3,500,000 Total liabilities of $500,000 Contributed capital of $1,000,000. What is the amount of retained earnings that should appear on Allentown's statement of financial position? 18) A) $2,000,000. B) $4,000,000. C) $5,000,000. D) $3,000,000. 3 3 / 4

19) For a business organized as a general partnership, which statement is true? 19) A) The owners and the business are separate legal entities. B) Formation of a partnership requires getting a charter from the province of incorporation. C) A partnership is not considered to be a separate accounting entity. D) Each partner is potentially responsible for the debts of the business. 20) The BAT Corporation had revenues of $110,000, expenses of $85,000, and an income tax rate of 20 percent in 20X2. What would profit after taxes be? 20) A) $5,000. B) $20,000. C) $15,000. D) $25,000. 21) If total liabilities increased by $25,000 and shareholders' equity increased by $5,000 during a period, then total assets must change by what amount and direction during that same period? 21) A) $25,000 increase. B) $20,000 decrease. C) $30,000 increase. D) $20,000 increase. 22) At the beginning of 20X2, Rodriguez Corporation had assets of $820,000 and liabilities of $340,000. During the year, assets increased by $40,000 and liabilities decreased by $8,000. What was total shareholders' equity at the end of 20X2? 22) A) $1,208,000. B) $480,000. C) $432,000. D) $528,000. 23) Which government regulatory agency has the legal authority to prescribe financial reporting requirements for corporations that sell their securities in Canadian stock exchanges in the province of Ontario? 23) A) CRA. B) CICA. C) OSC. D) AcSB. 24) What section of the statement of cash flows do bankers consider to be the most important? 24) A) Financing. B) Investing. C) Operating. D) All the sections are equally important. 25) In what order, would the assets of Any Company be listed on their statement of financial position? 25) A) Cash, Trade Receivables, Plant and Equipment, Inventory. B) Cash, Trade Receivables, Inventory, Plant and Equipment. C) Cash, Inventory, Trade Receivables, Plant and Equipment. D) Cash, Trade Receivables, Marketable Securities, Inventory. 4

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