85 test bank for principles of accounting 1st edition

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85 Test Bank for Principles of Accounting 1st Edition

Multiple Choice Questions - Page 1

The primary responsibility for setting the rules of accounting rests with the:

1 A Financial Accounting Standards Board (FASB).

2 B Generally Accepted Accounting Principles (GAAP).

3 C Security and Exchange Commission (SEC).

4 D American Institute of CPAs (AICPA).

Resources a business owns are called:

1 A Liabilities.

2 B Owner's equity.

3 C Revenues.

4 D Assets.

Unearned revenue is an example of a(n):

1 A Liability.

2 B Revenue.

3 C Asset.

4 D Expense.

Which of the following represents the fundamental accounting equation?

1 A A + L = OE

2 B A - L = OE

3 C OE + A = L

4 D L - OE = A

The rules of accounting are known as:

1 A Security and Exchange Commission (SEC).

2 B Financial Accounting Standards Board (FASB).

3 C American Institute of CPAs (AICPA).

4 D Generally Accepted Accounting Principles (GAAP).

Which of the following would not be considered an external user of accounting information?

1 A Bank

2 B Supplier

3 C Manager

4 D Investor

A bank is most likely a(n) _ user of accounting information

1 A external

2 B internal

3 C governmental

4 D managerial

Which financial statement links together the Income Statement and the Balance Sheet?

1 A Statement of cash flows

2 B Statement of owner's equity

3 C Statement of operations

4 D Statement of financial position

Claims a business owes are called owners' equity when they are held by:

1 A Creditors.

2 B Suppliers.

3 C Employees.

4 D Investors.

Inventory is an example of a(n):

1 A Liability.

2 B Revenue.

3 C Expense.

4 D Asset.

Which of the following is not one of the four basic financial statements?

1 A Income statement

2 B Statement of cash flows

3 C Accounting equation

4 D Balance sheet

Land is an example of a(n):

1 A Liability.

2 B Asset.

3 C Revenue.

4 D Expense.

An example of an asset is:

1 A Wages expense.

2 B Revenue.

3 C Supplies.

4 D Accounts payable.

Which of the following is considered an internal user of

accounting information?

1 A Production manager

2 B Supplier

3 C Investor

4 D Customer

In a business, who has the primary responsibility for following GAAP and preparing fair financial statements?

1 A Management

2 B The accountants

3 C The CPA

4 D The SEC

Which financial statement includes only those activities that result in cash changing hands during the period?

1 A Income statement

2 B Balance sheet

3 C Statement of cash flows

4 D Statement of owner's equity

The _ outlines how the profits (or losses) are shared

1 A Stock certificate

2 B Partnership agreement

3 C Corporate charter

4 D Financial statements

The governmental agency that supervises the work of the

Financial Accounting Standards Board (FASB) is known as the:

1 A Generally Accepted Accounting Principles (GAA).

2 B Securities and Exchange Commission (SEC).

3 C Public Company Accounting Oversight Board (PCAOB).

4 D American Institute of CPAs (AICPA).

Which of the following is not one of the types of business

activities included on the statement of cash flows?

1 A Investing

2 B Operating

3 C Financing

4 D Reporting

An example of a claim to resources of a business is:

1 A Cash.

2 B Land.

3 C Accounts payable.

4 D Accounts receivable.

Financial information that is ensures that it is

unbiased and verifiable.

1 A relevant

2 B comparable

3 C reliable

4 D consistent

Which of the following is considered an external user of accounting information?

1 A Production manager

2 B CEO

3 C IRS

4 D Controller

Which of the four basic financial statements provides a snapshot of the business on a particular day?

1 A Balance sheet

2 B Income statement

3 C Statement of cash Flows

4 D Statement of owner's equity

All of the following include activities of external users of accounting information except:

1 A Evaluating the risk of lending money to a business.

2 B Determining the amount of supplies on hand.

3 C Deciding whether to buy, sell or hold stock in a company.

4 D Assessing whether the company has paid the correct amount of taxes.

Which of the following is not a characteristic of an asset?

1 A It is a resource controlled by the business.

2 B It has measurable value.

3 C It is incurred to generate revenue.

4 D It is expected to provide future benefits.

Which financial statement should be prepared first?

1 A Balance sheet

2 B Statement of cash flows

3 C Income statement

4 D Statement of owner's equity

The Sarbanes-Oxley Act of 2002 requires that top managers maintain an audited system of:

1 A Accounting.

2 B Reporting.

3 C Internal control.

4 D Financing.

55 Free Test Bank for Principles of Accounting 1st Edition

by Libby Multiple Choice Questions - Page 2

Technology and the low cost of computers have resulted in:

1 A Increased complexity in accounting systems.

2 B Higher fees charged by public accountants.

3 C Small businesses handling their own bookkeeping.

4 D An abundance of accounting reports.

On December 31 of the current year, a company reported the following items on its balance sheet: Cash $10,500; Accounts receivable $5,200; Inventory $2,300; Equipment $102,400;

Accounts payable $12,000; Notes payable $56,000 What

amount should be reported as owner's equity?

1 A $108,400

2 B $52,400

3 C $120,400

4 D $188,400

Which of the following is an example of a service company?

1 A Wal-Mart

2 B Home Depot

3 C American Airlines

4 D Ford Motor Company

A company pays $3,400 for the current month utilities What is the effect on the accounting equation?

1 A Assets increase $3,400; no effect on liabilities; equity increases $3,400.

2 B Assets decrease $3,400; liabilities decrease $3,400; no effect on equity.

3 C Assets decrease $3,400; no effect on liabilities; equity decreases $3,400.

4 D Assets increase $3,400; liabilities increase $3,400; no effect on equity.

A company reported assets of $12,000 and liabilities of $2,500, what amount would be reported for owner's equity?

1 A $14.500

2 B $9,500

3 C $12,000

4 D $2,000

If a company purchases supplies on account for $5,000, what is the effect on the accounting equation?

1 A Assets increase $5,000; no effect on liabilities; equity increases $5,000.

2 B Assets decrease $5,000; liabilities decrease $5,000; no effect on equity.

3 C Assets decrease $5,000; no effect on liabilities; equity increases $5,000.

4 D Assets increase $5,000; liabilities increase $5,000; no effect on equity.

Accounting is an information system designed to:

1 A Provide information to external users only.

2 B Provide information to internal users only.

3 C Capture a business's activities and communicate results to all decision makers.

4 D Handle the record keeping of a business but other functions must be performed by a CPA.

What business type has two or more owners and unlimited

liability?

1 A Corporation

2 B Sole proprietorship

3 C Partnership

4 D Retailer

_ are the standards of conduct for judging right from wrong

1 A Ethics

2 B Rules

3 C Internal controls

4 D Conducts

The area of accounting which primarily serves the decision

making needs of internal users is:

1 A Financial accounting.

2 B Bookkeeping.

3 C Auditing.

4 D Managerial Accounting.

Accountants who are employed by a single business or

nonprofit organization work in:

1 A Public accounting.

2 B Private accounting.

3 C A CPA firm.

4 D Governmental accounting only.

A company purchases equipment for $45,000 cash What is the effect on the accounting equation?

1 A Assets increase $45,000; no effect on liabilities; equity increases $45,000.

2 B Assets decrease $45,000; liabilities decrease $45,000; no effect on equity.

3 C No effect on the accounting equation because assets increase and decrease by the same amount.

4 D Assets increase $45,000; liabilities increase $45,000; no effect on equity.

A company reported revenue of $100,000 and a net loss of

$12,000 What amount was reported as expenses?

1 A $112,000

2 B $12,000

3 C $88,000

4 D $100,000

When a company distributes profits to its owners the result is a(n):

1 A Decrease in profits.

2 B Decrease in assets and owner's equity.

3 C Increase in owner's equity.

4 D Increase in assets.

The following information is reported for Manco Company for the month of March Determine net income

1 A $(21,500)

2 B $144,500

3 C $21,500

4 D $73,000

Which of the following is not one of the three major ways that a business can be organized?

1 A Partnership

2 B Sole Proprietorship

3 C Corporation

4 D Wholesaler

Which of the following would not be an objective of an external user analyzing a company's financial statements?

1 A Assessing the company's ability to pay its debts.

2 B Predicting the future profitability of the company.

3 C Determining whether the company should drop an unprofitable product line.

4 D Understanding the financial position of the company.

One advantage of the corporate form of business over the other forms of business is:

1 A Limited liability.

2 B Ease of formation.

3 C Separate taxation.

4 D Lower legal fees.

Which of the following is not a required element of the title on a financial statement?

1 A The company's name

2 B The reporting date or period

3 C The name of the financial statement

4 D The preparer's name

Assets should originally be recorded at:

1 A Market value.

2 B Replacement cost.

3 C Historical cost.

4 D Amount owed on the asset.

Companies which make products from raw inputs are known as:

1 A Service Companies.

2 B Wholesalers.

3 C Retailers.

4 D Manufacturers.

If owners contribute $50,000 to start a new business what is the effect on the accounting equation?

1 A Assets increase $50,000; no effect on liabilities; equity increases $50,000.

2 B Assets decrease $50,000; liabilities decrease $50,000; no effect on equity.

3 C Assets decrease $50,000; no effect on liabilities; equity decreases $50,000.

4 D Assets increase $50,000; liabilities increase $50,000; no effect on equity.

Which of the following is not a merchandiser?

1 A Target

2 B Best Western

3 C Staples

4 D Macy's

What is the effect on the accounting equation if a company

earns revenues of $23,000 on account?

1 A Assets increase $23,000; no effect on liabilities; equity increases $23,000.

2 B Assets decrease $23,000; liabilities decrease $23,000; no effect on equity.

3 C Assets decrease $23,000; no effect on liabilities; equity decreases $23,000.

4 D Assets increase $23,000; liabilities increase $23,000; no effect on equity.

A company reported total equity of $82,000 on its December 31,

2009 balance sheet The following information is available for the year ended December 31, 2010: What are the total assets of the company as of December 31, 2010?

1 A $167,000

2 B $202,000

3 C $85,000

4 D $132,000

Boeing would be an example of what business type?

1 A Service company

2 B Merchandiser

3 C Manufacturer

4 D Retailer

How would the accounting equation be affected if a company obtains a loan for $100,000 from a bank?

1 A Assets increase $100,000; no effect on liabilities; equity increases $100,000.

2 B Assets decrease $100,000; liabilities decrease $100,000; no effect on equity.

3 C Assets decrease $100,000; no effect on liabilities; equity decreases $100,000.

4 D Assets increase $100,000; liabilities increase $100,000; no effect on equity.

The income statement reports:

1 A Revenues, assets and expenses.

2 B Net income or loss for the period.

3 C Only sales amounts paid in cash.

4 D The financial position on a particular date.

True - False Questions

If net income is equal to $10,000 then the company's cash has increased by $10,000

1 True

2 False

An accounting system is a system of financial recordkeeping

1 True

2 False

Managerial accounting reports produced by the accounting system are made available for external users of accounting

1 True

2 False

A business owned by one individual is known as a corporation

1 True

2 False

A company's managers have the primary responsibility for

following Generally Accepted Accounting Principles (GAAP) and for preparing fair financial statements.

1 True

2 False

One objective of external users of financial information is to assess the ability of a company to pay its liabilities

1 True

2 False

A business that has one owner is a partnership

1 True

2 False

Prepaid expenses are an example of an asset

1 True

2 False

Companies which do not make or sell goods are known as service companies

1 True

2 False

The correct order to prepare the financial statements is: 1) Balance Sheet, 2) Income Statement, 3) Statement of Cash Flows, and 4) Statement of Owner's Equity

1 True

2 False

Interest payable is an example of an expense

1 True

2 False

Financial statements are only prepared at the end of the year

1 True

2 False

The regulatory body responsible for setting the rules of

accounting is the Financial Accounting Standards Board

(FASB)

1 True

2 False

Financial information that is unbiased and verifiable is said to

be relevant

1 True

2 False

One disadvantage of a sole proprietorship and a partnership is unlimited liability

1 True

2 False

The high cost of computers has made it more difficult for

business owners to do their own bookkeeping

1 True

2 False

One advantage of a corporation over the other forms of

business is ease of formation

1 True

2 False

An accountant who charges a fee to businesses for their

services works in private accounting

1 True

2 False

Expenses are resources used to earn revenue

1 True

2 False

An owner has a claim to a business for the amounts invested in the business

1 True

2 False

Wal-Mart is an example of a retailer

1 True

2 False

Assets - Owner's Equity = Liabilities represents the fundamental accounting equation

1 True

2 False

The balance sheet reports a company's financial position at a particular point in time.

1 True

2 False

The statement of owner's equity links together the income

statement and the balance sheet

1 True

2 False

Southwest Airlines would be an example of a manufacturer

1 True

2 False

Resources a business owns are called revenues

1 True

2 False

Creditors and investors are examples of external users of accounting information

1 True

2 False

Accounts payable are claims a business owes to creditors

1 True

2 False

A manager who is considering whether to continue or

discontinue a particular product would refer to financial accounting information

1 True

2 False

The difference between assets and liabilities is called profit

1 True

2 False