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Which of the following accounts would not be reported on the balance sheet?


A) Retained earnings.
B) Inventory.
C) Accounts payable.
D) Dividends.

E) B) and C)
F) A) and C)

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In the United States, generally accepted accounting principles are published in the FASB Accounting Standards Codification.

A) True
B) False

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Determine the missing amounts for each independent case below. Assume the amounts shown are at the end of the company's first year of operation. Determine the missing amounts for each independent case below. Assume the amounts shown are at the end of the company's first year of operation.

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The Financial Accounting Standards Board (FASB) has been given the authority by the Securities and Exchange Commission (SEC) to develop generally accepted accounting principles.

A) True
B) False

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Madrid Company has provided the following data (ignore income taxes) : 2016 revenues were $77,500. 2016 net income was $33,900. Dividends declared and paid during 2016 totaled $5,700. Total assets at December 31, 2016 were $217,000. Total stockholders' equity at December 31, 2016 was $123,000. Retained earnings at December 31, 2016 were $83,000. Which of the following is not correct?


A) 2016 expenses were $43,600.
B) Total liabilities at December 31, 2016 were $94,000.
C) Retained earnings increased $33,900 during 2016.
D) Common stock at December 31, 2016 was $40,000.

E) All of the above
F) A) and C)

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Which of the following describes the primary objective of the balance sheet?


A) To measure the net income of a business up to a particular point in time.
B) To report the difference between cash inflows and cash outflows for the period.
C) To report the financial position of the reporting entity at a particular point in time.
D) To report the market value of assets, liabilities, and stockholders' equity at a particular point in time.

E) C) and D)
F) A) and B)

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Atlantic Corporation reported the following amounts at the end of the first year of operations: Atlantic Corporation reported the following amounts at the end of the first year of operations: What are the retained earnings of Atlantic at the end of the year, and what amount of expenses were incurred during the year? A) Retained earnings are $80,000 and expenses incurred totaled $680,000. B) Retained earnings are $80,000 and expenses incurred totaled $720,000. C) Retained earnings are $280,000 and expenses incurred totaled $480,000. D) Retained earnings are $280,000 and expenses incurred totaled $520,000. What are the retained earnings of Atlantic at the end of the year, and what amount of expenses were incurred during the year?


A) Retained earnings are $80,000 and expenses incurred totaled $680,000.
B) Retained earnings are $80,000 and expenses incurred totaled $720,000.
C) Retained earnings are $280,000 and expenses incurred totaled $480,000.
D) Retained earnings are $280,000 and expenses incurred totaled $520,000.

E) None of the above
F) A) and B)

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Which of the following is not an alternate title for the financial statement that reports revenues and expenses?


A) Income Statement.
B) Statement of Net Income.
C) Statement of Operations.
D) Statement of Income.

E) B) and D)
F) C) and D)

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Which of the following correctly describes the various financial statements?


A) An income statement covers a period of time.
B) The cash flow statement is a financial statement at a specific point in time.
C) The balance sheet is a financial statement that covers a period of time.
D) The statement of stockholders' equity is a financial statement at a specific point in time.

E) C) and D)
F) B) and C)

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Which of the following transactions affects both retained earnings and net income?


A) The payment of a cash dividend.
B) The recording of revenue for services provided.
C) The issuance of stock in exchange for cash.
D) The borrowing of money from a bank.

E) All of the above
F) None of the above

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The auditor can be held liable for malpractice in situations where the investors suffered losses while relying on the financial statements.

A) True
B) False

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Which of the following best describes liabilities and stockholders' equity?


A) They are the sources of financing an entity's assets.
B) They are the economic resources used by a business entity.
C) They are reported on the income statement.
D) They both increase when assets increase.

E) B) and D)
F) B) and C)

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Parker Pool Supply, Inc. reported the following items for the year ended December 31, 2016: Parker Pool Supply, Inc. reported the following items for the year ended December 31, 2016: Required: Prepare an income statement for the year ended December 31, 2016. Required: Prepare an income statement for the year ended December 31, 2016.

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Lena Company has provided the following data (ignore income taxes) : 2016 revenues were $99,000. 2016 expenses were $47,800. Dividends declared and paid during 2016 totaled $9,500. Total assets at December 31, 2016 were $177,000. Total liabilities at December 31, 2016 were $89,000. Common stock at December 31, 2016 was $28,000. Which of the following is correct?


A) 2016 net income was $41,700.
B) Total stockholders' equity at December 31, 2016 was $236,000.
C) Retained earnings at December 31, 2016 were $60,000.
D) Retained earnings at December 31, 2016 were $41,700.

E) C) and D)
F) A) and D)

Correct Answer

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Which of the following is represented by elements of the statement of stockholders' equity?


A) Common stock reinvested in the business.
B) Revenues plus dividends and expenses.
C) Earnings not distributed to owners.
D) Financing from creditors and stockholders.

E) A) and C)
F) A) and B)

Correct Answer

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Why does a company hire independent auditors?


A) To guarantee the accuracy of both annual and quarterly financial statements.
B) To verify the accounting accuracy of every transaction entered into.
C) To report on the fairness of financial statement presentation.
D) The auditors are responsible for the content of the financial statements.

E) None of the above
F) A) and B)

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The declaration of a $5,000 dividend by JLH Company would be reported on which of JLH's financial statements?


A) The income statement only.
B) The statement of stockholders' equity.
C) The balance sheet only.
D) The statement of cash flows.

E) B) and C)
F) C) and D)

Correct Answer

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A calendar year reporting company preparing its annual financial statements should use the phrase "At December 31, 2016" in the heading of which financial statements?


A) On all of the required financial statements.
B) On only the income statement.
C) On the income statement and balance sheet, but not the statement of cash flows.
D) On the balance sheet only.

E) A) and B)
F) A) and C)

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The income statement is a measure of an entity's economic performance for a period of time.

A) True
B) False

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Why is the CPA's role in performing audits important to our economic system?


A) The auditors provide direct financial advice to potential investors.
B) The auditors have the primary responsibility for the information contained in financial statements.
C) The auditors issue reports on the accuracy of each financial transaction.
D) The audit of financial statements helps investors and others to know that they can rely on the information presented in the financial statements.

E) A) and B)
F) All of the above

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