ACCT 201 Principles of Financial Accounting
Practice Exam - Chapter 1
Accounting Information For Business Decisions
Dr. Fred Barbee
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1. Accounting is an information and measurement system that
a.  Identifies economic activities
b.  Records economic activities
c.  Communicates economic information
d.  All of the above.
2. Businesses can take the following form(s)
a.  Sole Proprietorship.
b.  Corporations.
c.  Partnership.
d.  All of the above.
3. Operating activities
a.  Are the means organizations use to pay for resources like land, buildings, and machines..
b.  Involve using assets to reserach, develop, purchase, produce, distribute and market products and services.
c.  Involve acquiring assets that a business uses to sell its products or services.
d.  Are also called asset management.
4. External users of accounting information include
a.  Shareholders.
b.  Customers.
c.  Creditors.
d.  All of the above.
5. The primary objective of financial accounting is:
a.  To help organizations keep track of financing activities.
b.  To provide financial statements to help users analyze an organization's activities.
c.  To help an organization define its ideas, goals, and actions.
d.  To help an organization keep track of its buying and selling of resources.
6. Ethics
a.  Are beliefs that separate right from wrong.
b.  And law often coincide.
c.  Help to prevent conflicts of interest.
d.  All of the above.
7. Expenses:
a.  Are the amounts a business earns after subtracting all costs.
b.  Are the amounts earned from selling products and services.
c.  Are the costs incurred with generating sales.
d.  Occur when costs are greater than sales.
8. Return on investment is:
a.  Also called return on assets.
b.  Is used to help evaluate return and risk.
c.  Computed by dividing net income by average total assets.
d.  All of the above.
9. The Statement of Cash Flows reports on cash flows for:
a.  Operating activities.
b.  Investing activities.
c.  Planning activities.
d.  A and B only.
10. The basic financial statements include the
a.  Balance Sheet.
b.  Income statement.
c.  Statement of Cash Flows
d.  All of the above.

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Part II: Short Problems

1. Beginning retained earnings totaled $15,000 and the business sustained a net loss of $5,000 during the period. No dividends were paid during the period. If the Common Stock account balance is $40,000, what is the new balance of retained earnings and what is the end-of-period total equity?

2 Match the following terms a through j with the appropriate definition

  1. Investing Activities
  2. Ethics
  3. Recordkeeping
  4. Audit
  5. Internal Users
  6. Accounting
  7. Financing Activities
  8. Social Responsibility
  9. Operating Activities
  10. External Users
_____ 1. An information and measurement system that identifies, records and communicates relevant information to people to help them make better decisions.
_____ 2. The part of accounting that involves recording transactions and events, either electronically or manually.
_____ 3. Persons using accounting information who are not directly involved in the running of the organization.
_____ 4. Persons using accounting information who are directly involved in managing the organization.
_____ 5. The use of resources to carry out an organization's plans in the areas of research, dvelopment, purchasing, production, distribution, and marketing.
_____ 6. The buying and selling of resources that an organization uses to acquire its products and/or services.
_____ 7. The means organizations use to pay for resources such as land, buildings, and machines.
_____ 8. Conduct by which actions are judged as right or wrong, fair or unfair, honest, or dishonest.
_____ 9. Involves considering the impact of and being accountable for the effects that actions might have on society.
_____ 10. An analysis and report of an organization's accounting system and records using various tests.

3. The characteristics below apply to at least one of the forms of business

  1. Is a separate legal entity
  2. Is allowed to be owned by one person only.
  3. Owner or owners are personally liable for debts of the business.
  4. Is a taxable entity.
  5. Is created by a charter form a state or the federal government.
  6. Is the most common of all types of businesses.
  7. May have a contract specifying the division of profits among the owners.
  8. Owner or owners are not personally liable for debts of the business.
  9. Has an unlimited life
Use the following format to indicate (with a "yes" or "no") whether or not a characteristic applies to each type of business organization.

 
Proprietorship
Partnership
Corporation
a.
 
 
 
b.
 
 
 
c.
 
 
 
d.
 
 
 
e.
 
 
 
f.
 
 
 
g.
 
 
 
h.
 
 
 
i.
 
 
 

Part III: Problems

The following information is available for the XYZ Company:

Assets
$152,000
Cash inflows from operating activities
105,000
Cash outflows from financing activities
(44,000)
Cash outflows from investing activities
(84,000)
Costs and Expenses
43,000
Retained earnings, December 31, 2001
12,000
Retained earnings, December 31, 2002
???
Liabilities
28,000
Revenues
135,000
Dividends
(30,000)
Common stock
50,000

Using the above information prepare an Income Statement, Statement of Retained Earnings, and Statement of Cash Flows for the XYZ Company's calendar year 2002. Also prepare its Balance Sheet at December 31, 2002. br>

Last Modified January 15, 2003