89 test bank for accounting principles 1st edition

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89 Test Bank for Accounting Principles 1st Edition

by Warren Multiple Choice Questions-Page 1

Which of the following is BEST describes a manufacturing

business?

1. a It changes inputs to products that are sold to customers

2. b It sells products it purchases from other businesses

3. c Only a large business can be considered a manufacturing business

4. d It provide services rather than products to customers

Which of the following is a characteristic of a corporation?

1. a Corporations are organized as a separate legal taxable entity

2. b The owner is personally liable for company debts

3. c The life of the entity is limited to the life of the partners

4. d A corporation’s resources are limited to its individual owners’ resources

Due to various fraudulent business practices and accounting

cover-ups in the early 2000s, a new oversight board for public accountants was established What is it called?

1. a Generally Accepted Accounting Practices for Public Accountants Board

2. b Public Company Accounting Oversight Board

3. c Accounting Standards Board

4. d Canadian Public Accountability Board

Which of the following BEST describes accounting’s role in

business?

1. a Accounting provides shareholders with information regarding the market value of the company’s shares

2. b Accounting provides information to managers to operate the business and to other users to make decisions regarding the economic condition of the company

3. c Accounting provides creditors and banks with information regarding the credit risk rating of the company

4. d Accounting is not responsible for providing any form of information to users That is the role of the Information Systems department

Which of the following groups are considered to be external users

of accounting information?

1. a employees and customers

2. b customers and vendors

3. c management and employees

4. d managers, employees, and government

What does the business entity concept mean?

1. a The owner is part of the business entity.

2. b An entity is organized according to provincial or federal charters

3. c An entity is organized according to the rules set by the AcSB

4. d The entity is an individual economic unit for which data are recorded, analyzed, and reported

What does the reliability characteristic require?

1. a Business transactions must be consistent with the objectives of the entity

2. b The Accounting Standards Board must be fair and unbiased in its

deliberations over new accounting standards

3. c Accounting principles must meet the objectives of the provincial security regulatory body

4. d Amounts recorded in the financial statements must be based on

independently verifiable evidence

Which of the following is NOT true of accounting principles?

1. a Financial accountants follow generally accepted accounting principles (GAAP)

2. b Following GAAP allows accounting information users to compare one company to another

3. c A new accounting principle can be adopted with shareholders’ approval

4. d Accounting principles develop from research, accepted accounting practices, and pronouncements of authoritative bodies

What do managerial accountants provide?

1. a tax reports to government agencies

2. b profit reports to owners and management

3. c reports to management regarding expansion of a product line

4. d consumer reports to customers

What does the cost principle involve?

1. a the reliability characteristic and the monetary unit principle

2. b relevance and verifiability characteristics

3. c timeliness and understandability characteristics

4. d relevance and reliability characteristics

For accounting purposes, the business entity should be

considered separate from its owners if the entity is which of the following?

1. a a corporation

2. b a proprietorship

3. c a partnership

4. d a corporation, a proprietorship , or a partnership

Why do shareholders in a corporation have an interest in the company?

1. a They provide incentives for the company to market its products

2. b They are part of the Marketing Department that is responsible for promoting the products or services to increase business profits

3. c They help market the products to customers or find vendors to supply needed inputs

4. d They provide major financing for the business

Which of the following describes the monetary unit concept?

1. a It is used only in the financial statements of manufacturing companies

2. b It is not important when applying the cost principle

3. c It requires that different units be used for assets and liabilities

4. d It requires that economic data be reported in yen in Japan or dollars in Canada

Which of the following is NOT a business transaction?

1. a Make a sales offer

2. b Sell goods for cash

3. c Receive cash for services to be rendered later

4. d Pay for supplies

Which of the following items is NOT a business entity?

1. a entrepreneurship

2. b proprietorship

3. c partnership

4. d corporation

Which of the following BEST describes accounting?

1. a It records economic data but does not communicate the data to users according to any specific rules

2. b It is an information system that provides reports to users

3. c It is of no use by individuals outside the business

4. d It is used only for filling out tax returns and for financial statements for various types of governmental reporting requirements

Which of the following are all examples of merchandising

businesses?

1. a Air Canada, Holiday Inn, Gap

2. b Gap, Chapters, Bombardier

3. c Future Shop, Sony, Dell

4. d Future Shop, Best Buy, Gap

Which of the following authoritative body has the primary

responsibility for developing accounting principles?

1. a AcSB

2. b CRA

3. c OSC

4. d CMA

What does earning revenue do?

1. a It increases assets and increases owner’s equity

2. b It increases assets and decreases owner’s equity

3. c It increases one asset and decreases another asset

4. d It decreases assets and increases liabilities

What are the debts owed by a business?

1. a accounts receivables

2. b equities

3. c owner’s equity

4. d liabilities

What are the owned resources of a business?

1. a assets

2. b liabilities

3. c equities

4. d revenues

Which of the following groups are considered to be internal users

of accounting information?

1. a employees and customers

2. b customers and vendors

3. c employees and managers

4. d government and banks

Equipment with an estimated market value of $55,000 is offered for sale at $75,000 The equipment is acquired for $20,000 in cash and a note payable of $40,000 due in 30 days What is the amount used in the buyer’s accounting records to record this acquisition?

1. a $20,000

2. b $55,000

3. c $60,000

4. d $75,000

Which of the following are certifications for accountants?

2. b CMA, CGA, and AcSB

3. c CGA, CPAB, and CA

4. d GAAP, CA, and CGA

What is the monetary value charged to customers for the

performance of services sold called?

1. a an asset

2. b net income

3. c capital

4. d revenue

Which of the following are guidelines for behaving ethically? I Identify the consequences of a decision and its effect on others;

II Consider your obligations and responsibilities to those affected

by the decision; III Identify your decision based on personal

standards of honesty and fairness

1. a I and II

2. b II and III

3. c I and III

4. d I, II, and III

Darnell Company purchased $88,000 of computer equipment from Joseph Company Darnell Company paid for the equipment using cash that had been obtained from the initial investment by Donnie Darnell The transaction involving the computer

equipment should be recorded on the accounting records of

which of the following entities?

1. a Darnell Company and Donnie Darnell’s personal records

2. b Joseph Company and Donnie Darnell’s personal records

4. d Joseph Company

Suppose that total liabilities decreased by $55,000 during a

period of time and owner’s equity increased by $60,000 during the same period What would be the amount and direction

(increase or decrease) of the period’s change in total asset?

1. a a $115,000 increase

2. b a $115,000 decrease

3. c a $5,000 increase

4. d a $5,000 decrease

How are most businesses in Canada set up?

1. a as sole proprietorships

2. b as partnerships

3. c as corporations

4. d as separate entities

What does GAAP stand for?

1. a General Accounting Procedures

2. b Generally Accepted Plans

3. c Generally Accepted Accounting Principles

4. d Generally Accepted Accounting Practices

Which of the following is NOT an asset?

1. a investments

2. b cash

3. c inventory

4. d owner’s equity

Which of the following concepts relates to separating the

reporting of business and personal economic transactions?

1. a cost principle

2. b monetary unit concept

3. c business entity concept

4. d reliability characteristic

Which two common areas of accounting respectively provide information to internal and external users?

1. a forensic accounting and financial accounting

2. b managerial accounting and financial accounting

3. c managerial accounting and environmental accounting

4. d financial accounting and tax accounting systems

Who uses financial reports?

1. a management

2. b creditors

3. c investors

4. d management, creditors, and investors all use financial reports

Select the type of business that is most likely to obtain large amounts of resources by issuing shares

1. a partnership

2. b corporation

3. c proprietorship

4. d entrepreneurship

The assets and liabilities of the company are $175,000 and

$40,000, respectively Owner’s equity should equal which of the following?

1. a $215,000

2. b $175,000

3. c $135,000

4. d $40,000

Which entity is organized according to provincial or federal

charters and has it ownership divided into shares?

1. a a proprietorship

2. b a corporation

3. c a partnership

4. d a governmental unit

Which of the following would NOT normally operate as a service business?

1. a pet groomers

2. b restaurant

3. c video rentals

4. d styling salon

Which of the following BEST describes assets?

1. a They are always greater than liabilities

2. b They are either cash or accounts receivables

3. c They are the same as expenses because they are acquired with cash

4. d They are financed by the owner and/or creditors

How can the accounting equation be expressed?

1. a Assets = Equities – Liabilities

2. b Assets + Liabilities = Owner’s Equity

3. c Assets = Revenues less Liabilities

4. d Assets – Liabilities = Owner’s Equity

What are the fundamental qualitative characteristics that define information in financial statements?

1. a verifiability and timeliness characteristics

2. b business entity and the monetary unit concepts

3. c cost principle and understandability characteristic

4. d relevance and reliability characteristics

Currently, the dominant body in the development of accounting principles is which of the following?

1. a Accounting Standards Board (AcSB)

2. b Canadian Public Accountability Board (CPAB)

3. c Ontario Securities Commission (OSC)

4. d Society of Management Accountants (SMA)

Donner Company is selling a piece of land adjacent to its

business An appraisal reported the market value of the land to be

$120,000 The Focus Company initially offered to buy the land for

$107,000 The companies settled on a purchase price of

$115,000 On the same day, another piece of land on the same block sold for $122,000 Under the cost principle, what is the

amount that will be used to record this transaction in the

accounting records?

1. a $107,000

2. b $115,000

3. c $120,000

4. d $122,000

Which of the following is INCORRECT about the accounting

equation and its elements?

1. a The accounting equation is Assets = Liabilities – Owners’ Equity

2. b Assets are the resources a business possesses

3. c Liabilities represent debts of a business

4. d Examples of assets are cash, land, buildings, and equipment

A business paid $7,000 to a creditor in payment of an amount owed What was the effect of the transaction on the accounting equation?

1. a It increased an asset and decreased another asset

2. b It decreased an asset and decreased a liability

3. c It increased an asset and increased a liability

4. d It increased an asset and increased owner’s equity

Recently, owner Denzel withdrew $18,000 from his company, Crystal Cleaning, and he contributed $14,000, in his name, to Habitat for Humanity The contribution of the $14,000 should be recorded on the accounting records of which of the following

entities?

1. a Crystal Cleaning and Habitat for Humanity

2. b Denzel Jones’s personal records and Habitat for Humanity

3. c Denzel Jones’s personal records and Crystal Cleaning

4. d Denzel Jones’s personal records, Crystal Cleaning, and Habitat for Humanity

Which of the following is NOT a role of accounting in business?

1. a providing reports to users about the economic activities and conditions of

a business

2. b personally guaranteeing loans of the business

3. c providing information to other users to determine the economic

performance and condition of the business

4. d assessing the various informational needs of users and designing the organization’s accounting system to meet those needs

Profit is the difference between which of the following?

1. a assets and liabilities

2. b the incoming cash and outgoing cash

3. c the assets purchased with cash contributed by the owner and the cash spent to operate the business

4. d the assets received for goods and services and the amounts used to provide the goods and services

89 Free Test Bank for Accounting Principles 1st

Canadian Edition by Warren Multiple Choice

Questions-Page 2

Suppose that beginning capital was $70,000, ending capital is

$48,000, and the owner’s withdrawals were $21,000 What is the amount of net income or net loss?

1. a net income of $42,000

2. b net income of $17,000

3. c net loss of $22,000

4. d net loss of $1,000

Gomez Service Company paid its first installment on its Notes Payable in the amount of $2,000 How will this transaction affect the accounting equation?

1. a Increase Liabilities (Notes Payable); decrease Assets (Cash)

2. b Decrease Assets (Cash); decrease Owner’s equity (Note Payable Expense)

3. c Decrease Assets (Cash); decrease Assets (Notes Receivable)

4. d Decrease Assets (Cash); decrease Liabilities (Notes Payable)

Where does the year-end balance of the owner’s capital account appear?

1. a in both the statement of owner’s equity and the income statement

2. b in only the statement of owner’s equity

3. c in both the statement of owner’s equity and the balance sheet

4. d in both the statement of owner’s equity and the cash flow statement

A financial statement user would determine if a company was profitable or not during a specific period of time by reviewing which of the following?

1. a the income statement

2. b the balance sheet

3. c the cash flow statement

4. d cannot be determined

What do owner’s withdrawals do?

1. a They increase expenses

2. b They decrease expenses

3. c They increase cash

4. d They decrease owner’s equity

When are expenses recorded?

1. a when cash is paid for services received

2. b when a bill is received in advance of services received

3. c when services are received

4. d when creditors are paid on account

If an owner wanted to know how money flowed into and out of the company, what financial statement would she use?

1. a income statement

2. b cash flow statement

3. c balance sheet

4. d statement of owners equity

How does the rendering of services on account affect the

accounting equation?

1. a assets increase; owner’s equity increases

2. b assets decrease; owner’s equity decreases

3. c assets increase; owner’s equity decreases

4. d liabilities increase; owner’s equity decreases

Which of the following increases owner’s equity?

1. a cash

2. b revenue

3. c accounts receivable

4. d withdrawals

Simpson Auto Body Repair purchased $20,000 of Machinery The company paid $8,000 in cash at the time of the purchase and signed a promissory note for the remainder to be paid in four

monthly installments How will this transaction affect the

accounting equation?

1. a Increase Assets (Machinery $20,000); decrease Liabilities (Accounts Payable $20,000)

2. b Increase Total Assets by a net amount of $12,000 (increase Machinery

$20,000 and decrease Cash $8,000); increase Liabilities (Notes Payable

$12,000)