138 test bank for financial accounting 10th edition by harrison

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138 Test Bank for Financial Accounting 10th Edition

by Harrison

Multiple Choice Questions

Advantages of a corporation include:

1 A) each stockholder can enter into agreements that legally bind all the

stockholders

2 B) the double taxation of distributed profits

3 C) limited liability of the stockholders for the corporation's debts

4 D) each stockholder can conduct business in the name of the corporation

All of the following are true statements about the entity assumption EXCEPT for:

1 A) the entity assumption draws a sharp boundary around each entity

2 B) the transactions of the business cannot be combined with the transactions

of the owner

3 C) the entity assumption ensures that the business will continue indefinitely

4 D) under the entity assumption, the entity is any organization that stands apart

as a separate economic unit

Which of the following is a TRUE statement about the

3 C) Net income and loss of the partnership "flows through" to the partners

4 D) The partnership agreement must be in writing

The fair value of a plant asset is equal to:

1 A) the amount the business could sell the asset for

2 B) the amount of cash paid plus the dollar value of noncash consideration given in exchange for the plant asset at acquisition

3 C) the amount of cash paid plus the loan taken out to finance the purchase of the plant asset.

4 D) the amount a company can receive for the asset when sold in order to go out of business

Information must be sufficiently transparent so that it makes sense

to reasonably informed users of the financial statements, such as creditors This qualitative characteristic of information is called:

Which statement is TRUE about partnerships?

1 A) Legally, a partnership is separate from the partners

2 B) A partnership has one capital account

3 C) For accounting purposes, a partnership is separate from the partners

4 D) For accounting purposes, a partnership is not separate from the partners

The is elected by the stockholders and is responsible for setting policy and appointing officers

1 A) board of directors

2 B) chief executive officer (CEO)

3 C) chief financial officer (CFO)

4 D) advisory council

An important fact to consider when determining how to organize a business is that:

1 A) members of an LLC have unlimited liability and are taxed like members of

4 D) the proprietor and the proprietorship are separate legal entities

Characteristics of faithfully representative information do NOT

Which statement is FALSE?

1 A) International Financial Reporting Standards are used by many countries in the world

2 B) U.S Generally Accepted Accounting Principles are used by many

countries in the world

3 C) The Financial Accounting Standards Board is working with the InternationalAccounting Standards Board to develop similar accounting standards

4 D) For many years, U.S Generally Accepted Accounting Principles were considered to be the superior set of accounting standards in the world

Which of the following have unlimited liability for a company's

debts?

1 A) owners of a corporation

2 B) members of a limited liability company

3 C) limited partners in a limited liability partnership

4 D) general partner in a limited liability partnership

The entity assumption does NOT apply to a:

1 A) proprietorship.

2 B) limited liability partnership

3 C) limited-liability company

4 D) The entity assumption applies to all the above

Which of the following statements is TRUE for a proprietorship?

1 A) Legally, a proprietorship is separate from the proprietor

2 B) For accounting purposes, a proprietorship is separate from the proprietor

3 C) For accounting purposes, a proprietorship is not separate from the

1 A) comparability and relevance

2 B) relevance and faithful representation

3 C) materiality and understandability

4 D) faithful representation and timeliness

In 1960, Johnson Company purchased a building for $100,000 In

2013, a real estate professional says the building has a fair value of

$1,000,000 In 2013, a similar building down the street recently sold

for $900,000 What value is reported for the building on the balance sheet at December 31, 2013?

1 A) Members have unlimited liability for the debts of the business

2 B) Members have limited liability for the debts of the business

3 C) Only the limited partners have limited liability for the debts of the business

4 D) The general partner has unlimited liability for the debts of the business

Which of the following statements is FALSE?

1 A) The Securities and Exchange Commission is investigating whether all U.S public companies should adopt International Financial Reporting Standards

2 B) The advantage of a uniform set of global accounting standards is that financial statements from a U.S company will be comparable to those of a foreign company

3 C) In the long run, a uniform set of global accounting standards will reduce thecosts of doing business globally

4 D) With a uniform set of global accounting standards, companies will have to produce multiple versions of their financial statements

Decision makers who use accounting information include:

1 A) creditors

2 B) the Internal Revenue Service

3 C) the Securities and Exchange Commission

4 D) all of the above

Which of the following statements is TRUE for a limited liability partnership?

1 A) The partners all have limited liability for the debts of the partnership

2 B) The partners all have limited liability for the acts of the other partners

3 C) The general partner has unlimited liability for the debts of the partnership.

4 D) The limited partners have unlimited liability for the debts of the partnership

Shareholders of a corporation:

1 A) have limited liability for the corporation's debts

2 B) have unlimited liability for the corporation's debts

3 C) have unlimited liability for the actions of other stockholders

4 D) receive dividends from the corporation without having to pay tax on the distribution

In order to compare the financial statements of Toyota Corporation

to the financial statements of General Motors, it would be preferable

to use _

1 A) U.S Generally Accepted Accounting Principles for General Motors and International Financial Reporting Standards for Toyota

2 B) U.S Generally Accepted Accounting Principles for both companies

3 C) International Financial Reporting Standards for both companies

4 D) U.S Generally Accepted Accounting Principles for Toyota Corporation andInternational Financial Reporting Standards for General Motors

The process of verifying accounting information in financial

statements is undertaken by:

1 A) the Securities and Exchange Commission

2 B) internal auditors only

3 C) external auditors only

4 D) internal and external auditors

A company uses LIFO to determine the cost of goods sold each year This inventory method always results in the lowest possible net income This is an example of:

1 A) cost benefit constraint

2 B) materiality

3 C) verifiability

4 D) consistency

The International Accounting Standards Board is responsible for establishing:

1 A) the code of professional conduct for accountants

2 B) the Securities and Exchange Commission

3 C) Generally Accepted Accounting Principles used in the United States

4 D) International Financial Reporting Standards

Which of the following entities pays federal income taxes?

1 A) limited liability partnership

2 B) limited partners only

3 C) general partners only

4 D) members

A disadvantage of general partnerships is:

1 A) double taxation of distributed profits

2 B) the partnership's assets are commingled with each partner's personal assets

3 C) state rules and regulations must be followed

4 D) each partner may conduct business in the name of the entity and make agreements that legally bind all partners

Accounting:

1 A) measures business activities

2 B) processes data into reports and communicates the data to decision makers

3 C) is often called the language of business

4 D) is all of the above

Which of the following is a CORRECT statement about GAAP and IFRS?

1 A) IFRS prefers valuing assets at historical cost while GAAP prefers using fairvalue

2 B) IFRS is more "rules-based" than GAAP

3 C) The FASB and the IASB are working towards convergence of standards

4 D) The SEC will require all companies to use IFRS beginning in 2013

Which of the following statements is TRUE for a limited liability partnership?

1 A) The partnership pays no federal income taxes

2 B) Only the limited partners pay federal income taxes on their shares of the partnership's profits

3 C) Only the general partner pays federal income taxes on his or her share of the partnership's profits

4 D) Only the members pay federal income taxes on their shares of the

partnership's profits

The two types of accounting are:

1 A) profit and nonprofit

2 B) financial and managerial

3 C) internal and external

4 D) bookkeeping and decision-oriented

138 Free Test Bank for Financial Accounting 10th

Edition by Harrison Multiple Choice Questions - Page 2

The accounting equation can be stated as:

1 A) Assets + Stockholders' Equity = Liabilities

2 B) Assets -Liabilities = Stockholders' Equity

3 C) Assets = Liabilities - Stockholders' Equity

4 D) Assets - Stockholders' Equity + Liabilities = Zero

The assets of a company:

1 A) must equal the liabilities of the company.

2 B) include property, plant, and equipment and accounts payable

3 C) represent economic resources that are expected to produce a future

benefit

4 D) include short-term investments and notes payable

At the end of the current accounting period, account balances were

as follows: Cash, $25,000; Accounts Receivable, $40,000;

Common Stock, $18,000; Retained Earnings, $14,000 Liabilities for the period were:

Which of the following statements is TRUE?

1 A) Dividends are expenses of a business

2 B) Dividends reduce retained earnings

3 C) Dividends increase retained earnings

4 D) Dividends reduce net income

All of the following are expenses EXCEPT for:

1 A) Cost of Goods Sold

2 B) Depreciation Expense

3 C) Salary Expense

4 D) Dividends.

Net income:

1 A) is calculated by subtracting total expenses and total dividends from total revenues

2 B) occurs when total revenues are less than total expenses

3 C) is often referred to as the "bottom line" on an income statement

4 D) decreases total stockholders' equity

The principle stating that assets acquired by the business should be recorded at their actual cost on the date of purchase is the:

1 A) historical cost principle

2 B) objectivity principle

3 C) reliability principle

4 D) stable dollar principle

Net income is computed as:

1 A) revenues - expenses - dividends

2 B) revenues + expenses

3 C) revenues - expenses

4 D) revenues - expenses + dividends

On January 1, 2015, total assets for Wininger Technologies were

$135,000; on December 31, 2015, total assets were $155,000 On January 1, 2015, total liabilities were $110,000; on December 31,

2015, total liabilities were $115,000 What is the amount of the change and the direction of the change in Wininger Technologies' stockholders' equity for 2015?

1 A) revenues minus expenses.

2 B) assets minus liabilities

3 C) assets plus liabilities

4 D) paid-in capital plus assets

When total expenses exceed total revenues, the result is:

1 A) Net income was $10,000; the change in retained earnings was $10,000

2 B) Net income was $150,000; the change in retained earnings was $15,000

3 C) Net income was $10,000; the change in retained earnings was $5,000

4 D) Net income was $150,000; the change in retained earnings was $145,000

Census Company had the following accounts and balances at the end of the year What are total liabilities at the end of the year?

Cash $74,000; Accounts Payable $12,000; Common Stock

$21,000; Cost of Goods Sold $85,000; Dividends Declared and Paid $12,000; Operating Expenses $12,000; Accounts Receivable

$50,000; Inventory $40,000; Long-term Notes Payable $33,000; Revenues $90,000; Salaries Payable $24,000

The relevant measure of the value of the assets of a company that

is going out of business is the:

1 A) Only the vacation home in Hawaii

2 B) Only the factory in Detroit

3 C) Both the vacation home in Hawaii and the factory in Detroit

4 D) Neither the vacation home in Hawaii nor the factory in Detroit

The major types of transactions that affect retained earnings are:

1 A) paid-in capital and common stock

2 B) assets and liabilities

3 C) revenues, expenses, and dividends

4 D) revenues and liabilities

Which of the following increases retained earnings?

Which of the following must be added to beginning Retained

Earnings to compute ending Retained Earnings?

1 A) is determined for each asset on a yearly basis

2 B) is equal to the amount of cash paid less the dollar value of all non-cash consideration given in the exchange

3 C) is a verifiable measure that is relatively free from bias

4 D) is the amount that the business could sell the asset for

The stable monetary unit assumption:

1 A) ensures that accounting records and statements are based on the most reliable data available

2 B) holds that the entity will remain in operation for the foreseeable future

3 C) maintains that each organization or section of an organization stands apartfrom other organizations and individuals

4 D) enables accountants to ignore the effect of inflation on the accounting records

Expenses of a business include:

1 A) sales and cash equivalents.

2 B) common stock and rent expense

3 C) cost of goods sold and salaries expense

4 D) retained earnings and utilities expense

An entity's equity consists of two accounts, Amy Jones, Capital, and Mindy Lenz, Capital This indicates the entity is a:

1 A) proprietorship

2 B) corporation

3 C) not-for-profit

4 D) partnership

Another way to state the accounting equation is:

1 A) Assets = Liabilities + Paid-in Capital - Common Stock

2 B) Assets + Liabilities = Stockholders' Equity

3 C) Assets = Liabilities + Paid-in Capital + Retained Earnings

4 D) Assets = Liabilities - Paid-in Capital - Dividends

Liabilities are:

1 A) a form of paid-in capital

2 B) future economic benefits to which a company is entitled

3 C) debts payable to outsiders called creditors

4 D) the outflow of resources that decrease common stock

The accounting assumption that states that the business, rather than its owners, is the reporting unit is the:

1 A) entity assumption

2 B) going concern assumption

3 C) stable-monetary-unit assumption

4 D) historical cost assumption

If a company prepares its financial statements three years after the end of their accounting period, they have violated the qualitative characteristic of:

1 A) understandability

$74,000; Accounts Payable $12,000; Common Stock $21,000; Cost

of Goods Sold $85,000; Dividends Declared and Paid $12,000; Operating Expenses $12,000; Accounts Receivable $50,000;

Inventory $40,000; Long-term Notes Payable $33,000; Revenues

Verifiability means that the information:

1 A) is timely and understandable

2 B) is understandable

3 C) must be capable of being checked for accuracy, completeness and

reliability

4 D) is material and relevant

Examples of liabilities include:

1 A) accounts payable and dividends

2 B) accounts payable and common stock

3 C) investments and note payable

4 D) accounts payable and note payable

138 Free Test Bank for Financial Accounting 10th

Edition by Harrison Multiple Choice Questions - Page 3

All of the following will appear on the income statement EXCEPT for: