88 test bank for financial and managerial accounting 2nd edition

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88 Test Bank for Financial and Managerial Accounting 2nd Edition

Charles Horngren Multiple Choice Questions - Page 1

Corporate ownership is a very popular type of ownership in the United States Which of the following is a major reason that

corporate ownership is popular?

1 A) Corporate shareholders have limited liability for the debts of the

corporation.

2 B) Most corporations are small or medium-sized.

3 C) The life of a corporation is limited by the death of an owner.

4 D) A corporation is usually managed by the owners.

An obligation that a corporation owes to an outside person or agency is called a(n):

1 A) asset.

2 B) liability.

3 C) stockholders’ equity.

4 D) revenue.

In an LLC, who is responsible for the company’s debts?

1 A) The company itself

2 B) The partners

3 C) The individual investors

4 D) The proprietor

A proprietorship possesses which of the following

characteristics?

1 A) A proprietorship joins two or more individuals as co-owners.

2 B) If a proprietorship cannot pay its debts, lenders cannot take the owners' personal assets to satisfy the obligations.

3 C) A proprietorship has a single owner.

4 D) None of the above is a characteristic of a proprietorship.

Organizing as a corporation separates management from the:

1 A) proprietors.

2 B) vendors.

3 C) customers.

4 D) stockholders.

Which of the following is most likely to be a user of information in

a managerial accounting setting?

1 A) Potential investors

2 B) Creditors

4 D) Department heads

A partnership possesses which of the following characteristics?

1 A) A partnership is owned by shareholders or stockholders.

2 B) If a partnership cannot pay its debts, lenders cannot take the owners' personal assets to satisfy the obligations.

3 C) A partnership joins two or more individuals as co-owners.

4 D) None of the above is a characteristic of a partnership.

There are more than any other form of business organization

1 A) partnerships

2 B) sole proprietorships

3 C) corporations

4 D) limited liability partnerships

Which financial statement is defined as reporting the inflows and outflows of cash in a corporation?

1 A) Income statement

2 B) Statement of retained earnings

3 C) Balance sheet

4 D) Statement of cash flows

There are relatively few types of revenue Which of the following

in NOT a type of revenue?

1 A) Dividends paid to stockholders

2 B) Service

3 C) Interest

4 D) Sales

The first step in incorporation is to:

1 A) have the board of directors designate a president.

2 B) agree to a set of bylaws.

3 C) issue the first shares of stock.

4 D) obtain a charter from the state.

Accounting information may be generated for a variety of

purposes The key products of accounting are:

1 A) financial statements.

2 B) remittance advices.

3 C) spreadsheets.

4 D) work sheets.

Caleb Brown has been the sole owner of a bicycle sales and

repair shop for many years Which of the following business types would best protect Caleb's personal assets from product liability exposure?

1 A) Partnership

2 B) Limited liability company

3 C) Proprietorship

4 D) Limited liability partnership

Dylan Chase is a CPA and one of the tax partners in a CPA

practice One of Dylan's partners sometimes takes a very

aggressive position when auditing clients Which of the following business types would protect Dylan's personal assets from

malpractice liability for his partner’s aggressive auditing tactics?

1 A) Limited liability partnership

2 B) Partnership

3 C) Limited liability company

4 D) Proprietorship

A promise to pay from customers for goods and services that they received from a company represent:

1 A) accounts receivable.

2 B) accounts payable.

3 C) revenues.

4 D) expenses.

By definition, which of the following represent the owners of a corporation?

1 A) Customers

2 B) Creditors

3 C) Stockholders

4 D) None of the above

The principles called GAAP are established by the:

1 A) SEC.

2 B) AICPA.

4 D) IRS.

Which of the following statements best describes managerial accounting?

1 A) Managerial accounting focuses on information for internal decision

making.

2 B) Managerial accounting focuses on outside investors and lenders that are not part of day-to-day management.

3 C) Managerial accounting provides information for the public.

4 D) None of these statements is true.

The primary objective of financial reporting is to provide

information useful for making investment and lending decisions

To be useful, information must possess certain characteristics Which of the following is NOT one of the basic characteristics that financial statements must possess to be useful?

1 A) Reliability

2 B) A stockholders’ equity section

3 C) Relevance

4 D) Comparability

Which of the following is likely to be a user of information in a financial accounting setting?

1 A) Taxing authorities

2 B) Other businesses

3 C) Potential investors

4 D) All of the above

Items such as buildings and land are:

1 A) liabilities.

2 B) equity.

3 C) assets.

4 D) part of equity or assets, depending upon the paperwork.

Many organizations have contributed to the process of creating and/or using generally accepted accounting principles Which of the following organizations has the primary responsibility for

formulating accounting standards?

2 B) CMA

3 C) AICPA

4 D) SEC

Which of the following is a licensed accountant who serves the general public rather than an accountant who serves one

particular company?

2 B) CMA

3 C) SEC

4 D) FASB

Accounting is the information system that provides information to various users This process includes:

1 A) compiling the data into reports.

2 B) measuring business activity.

3 C) communicating the results to decisions makers.

4 D) all of the above.

A corporation possesses all but one of the following

characteristics Which of the following is NOT a characteristic of a corporation?

1 A) If a corporation cannot pay its debts, lenders can take the owners'

personal assets to satisfy the obligations.

2 B) A corporation is an "artificial person" in the eyes of the law.

3 C) Ownership is divided into individual shares.

4 D) A corporation is owned by shareholders or stockholders.

Accountants often refer to GAAP What do the letters GAAP

represent in accounting?

1 A) Globally accepted and accurate policies

2 B) Global accommodation accounting principles

3 C) Generate accurate accounting policies

4 D) Generally accepted accounting principles

Which of the following statements best defines accounting

financial statements?

1 A) Financial statements are the information system that measures business activities.

2 B) Financial statements are the verbal statements made to business news organizations by chief financial officers.

3 C) Financial statements are documents that report on a business in

monetary terms, providing information to help people make informed

business decisions.

4 D) Financial statements process information into reports.

Businesses can be organized in a variety of forms The types of business forms found in the U.S include all of the following

EXCEPT:

1 A) corporation.

2 B) tax shelter.

3 C) partnership.

4 D) proprietorship.

Phillip and Reed have developed a new technology for home computer systems However, they need to raise a large amount of

capital to build the production and support facilities to market their product successfully Which of the following business types would most likely attract enough investors to provide the company with the necessary capital to begin production?

1 A) Corporation

2 B) Proprietorship

3 C) Partnership

4 D) Limited liability partnership

A limited liability partnership possesses which of the following characteristics?

1 A) A limited liability partnership is an "artificial person" in the eyes of the law.

2 B) If a limited liability partnership cannot pay its debts, lenders cannot take the owners' personal assets to satisfy the obligations.

3 C) A limited liability partnership joins two or more individuals as co-owners.

4 D) All of the above are true.

88 Free Test Bank for Financial and Managerial

Accounting 2nd Edition Charles Horngren Multiple

Choice Questions - Page 2

An individual asset is increased Which of the following is

possible?

1 A) There is an equal decrease in another asset.

2 B) There is an equal decrease in stockholders’ equity.

3 C) There is an equal decrease in a liability account.

4 D) None of these is possible.

Lindsey Smith decided to start her own CPA practice as a

professional corporation, Smith CPA PC Lindsey contributed a building to the corporation in exchange for stock She had

purchased the office building for $35, 000 which her real estate agent said could be sold for $50, 000 in the near future The

corporation records the building as a $50,000 asset because

Lindsey believes that is the real value of the building Which of the following concepts or principles of accounting is being

violated?

1 A) Cost principle

2 B) Entity concept

3 C) Stable monetary unit concept

4 D) Going-concern concept

Services are performed Payment is expected next month How does this affect the accounting equation?

1 A) Liabilities increase; stockholders’ equity decreases.

2 B) Assets increase; stockholders’ equity increases.

3 C) Assets decrease; stockholders’ equity decreases.

4 D) Assets increase; stockholders’ equity decreases.

Which of the following concepts (or principles) would be most likely to require that data be verifiable?

1 A) Cost principle

2 B) Reliability concept

3 C) Entity concept

4 D) Going-concern concept

A liability is paid with cash How does paying this liability affect the accounting equation?

1 A) Assets decrease; liabilities decrease.

2 B) Liabilities decrease; stockholders’ equity increases.

3 C) Assets increase; liabilities increase.

4 D) Assets increase; liabilities decrease.

Which of the following concepts (or principles) addresses the

ability of partners to commit other partners and the business to a contract?

1 A) Going-concern concept

2 B) Cost principle

3 C) Mutual agency

4 D) Objectivity principle

Assets are $270,000 and stockholders’ equity is $90,000

Liabilities will be:

1 A) $ 60,000.

2 B) $360,000.

3 C) $270,000.

4 D) $180,000.

An American business using the US dollar and a European Union country business using the Euro represent which of the following concepts or principles?

1 A) Cash flow principle

2 B) Transaction principle

3 C) Objectivity principle

4 D) Stable monetary unit principle

Land is purchased with a $20,000 down payment and the

execution of an $80,000 promissory note How does this

purchase affect the accounting equation?

1 A) Assets increase $80, 000; liabilities decrease $20,000.

2 B) Assets increase $20, 000; liabilities decrease $80,000.

3 C) Assets increase $80, 000; stockholders’ equity increases $80,000.

4 D) Assets increase $80, 000; liabilities increase $80,000.

A corporation has all of the following EXCEPT:

1 A) a charter.

2 B) a board of directors.

3 C) unlimited liability.

4 D) none of the above.

A $5,000 account payable is paid How is the accounting equation affected?

1 A) Assets decrease $5,000; stockholders’ equity increases $5,000.

2 B) Assets decrease $5,000; liabilities decrease $5,000.

3 C) Assets increase $5,000; stockholders’ equity decreases $5,000.

4 D) Assets increase $5,000; liabilities increase $5,000.

Which of the following concepts (or principles) would dictate that

a person with three different businesses keep three different

checking accounts?

1 A) Cost principle

2 B) Reliability concept

3 C) Going-concern concept

4 D) Entity concept

The owners’ claims to the assets of the business are called:

1 A) revenues.

2 B) liabilities.

3 C) owners’ equity.

4 D) none of the above.

Which of the following concepts (principles) would be most likely

to require an assumption that the entity will remain in operation for the foreseeable future?

1 A) Entity concept

2 B) Reliability concept

3 C) Going-concern concept

4 D) Cost principle

Tate Corporation purchased a building for its grocery store for

$30,000 in 1970 Based on inflation estimates, the amount of this asset has been adjusted in the accounting records The building

in now reported at $75,000 Which of the following concepts or principles of accounting is being violated?

1 A) Reliability concept

2 B) Stable monetary unit concept

3 C) Entity concept

4 D) Going-concern concept

Stockholders’ equity is $150,000 and total liabilities are $90,000 Total assets would be:

1 A) $300,000.

2 B) $180,000.

3 C) $ 60,000.

4 D) $240,000.

A bill is received for services rendered this month It will be paid next month How does receiving this bill affect the accounting equation?

1 A) Assets decrease; stockholders’ equity decreases.

2 B) Liabilities increase; stockholders’ equity decreases.

3 C) Assets increase; liabilities increase.

4 D) Liabilities increase; stockholders’ equity increases.

Cash is collected from a customer who was previously put on account How does the collection of the cash affect the

accounting equation?

1 A) Assets increase; stockholders’ equity increases.

2 B) Assets increase; liabilities increase.

3 C) Assets increase; assets decrease.

4 D) Assets decrease; stockholders’ equity decreases.

Assets are $150,000 and total liabilities are $90,000 Total

stockholders’ equity will be:

1 A) $180,000.

2 B) $300,000.

3 C) $240,000.

4 D) $ 60,000.

A $5,000 account receivable is collected How is the accounting equation affected?

1 A) Assets increase $5,000; liabilities decrease $5,000.

2 B) Assets increase $5,000; assets decrease $5,000.

3 C) Assets increase $5,000; liabilities increase $5,000.

4 D) Assets increase $5,000; stockholders’ equity increases $5,000.

Counting the actual physical inventory of a company would be an example of the:

1 A) objectivity principle (verifiability).

2 B) entity concept.

3 C) going-concern concept.

4 D) stable monetary unit concept.

Which of the following concepts (principles) would be most likely

to require that an item be recorded at the amount actually paid?

1 A) Going-concern concept

2 B) Entity concept

3 C) Cost principle

4 D) Reliability concept

Total liabilities increase by $7,000 How is the accounting

equation affected?

1 A) Assets have increased by $7,000, or stockholders’ equity has decreased

by $7,000.

2 B) Assets have decreased by $7,000.

3 C) Assets and stockholders’ equity have each decreased by $3,500.

4 D) Stockholders’ equity has increased by $7,000.

Equipment is sold for cash equal to the amount recorded on the books How does this sale affect the accounting equation?

1 A) Assets increase; assets decrease.

2 B) Assets increase; liabilities increase.

3 C) Assets increase; liabilities decrease.

4 D) Assets increase; stockholders’ equity increases.

Land was originally purchased for $20,000 It is sold for $20,000

in cash How does the sale affect the accounting equation?

1 A) Assets increase $20, 000; liabilities decrease $20, 000

2 B) Assets increase $20, 000; liabilities increase $20, 000.

3 C) Assets increase $20, 000; stockholders’ equity increases $20, 000.

4 D) Assets increase $20, 000; assets decrease $20, 000.

A corporation pays cash dividends How does the payment of these dividends affect the accounting equation?

1 A) There is no effect on the assets, liabilities, or stockholders’ equity.

2 B) Assets decrease; stockholders’ equity decreases.

3 C) Assets increase; liabilities decrease.