142 test bank for financial and managerial accounting 3rd edition

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142 Test Bank for Financial and Managerial Accounting 3rd Edition

A business owner starts a new business and invests $6,000 in exchange for shares of stock This transaction results in an increase in the corporation's liabilities

Independent accountants that audit public companies come under the

regulatory supervision of the PCAOB

1 True

2 False

The PCAOB is a watchdog agency that monitors the work of small, privately owned businesses

IFRS are the international accounting rules that U.S companies must follow for their international operations

The most an investor in a corporation can lose-in the event the business

fails-is limited to the amount the party has invested

1 True

2 False

By looking at a statement of retained earnings, you can evaluate the effect that paying dividends has on the ending balance in stockholders' equity

1 True

2 False

Different users of the financial statements (investors, creditors, tax

authorities, etc all focus on the same parts of the financial statements for the information they need

The AICPA's Code of Professional Conduct for Accountants provides

guidance to CPAs in the performance of their work

1 True

2 False

Corporations are subject to stricter regulation than other forms of businesses,

so it is more difficult for corporations to raise large amounts of investment capital

1 True

2 False

The relative proportion of economic resources and obligations would be shown by the balance sheet

Accounting is the information system that measures business activity,

processes the data into reports, and communicates the results to decision makers

1 True

2 False

A U.S publicly traded company does not come under SEC regulations as long

as it follows the rules of GAAP

1 True

2 False

IFRS accounting rules apply to all U.S corporations

1 True

2 False

Multiple Choice Questions-Page 1

The separation between the owners and the managers of a business is most distinct in a(n.:

1 A corporation.

2 B LLP.

3 C partnership.

4 D proprietorship.

The Sarbanes-Oxley Act ("SOX" made it a criminal offense to:

1 A steal shareholders' money.

2 B default on loans from creditors.

3 C declare bankruptcy.

4 D falsify financial information.

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 Not-for-profit

Accounting standards are formulated by the:

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 be best suited to help the company raise the necessary capital to begin production?

Which of the following statements BEST defines financial statements?

1 A Financial statements are the information system that records and measures business transactions.

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 are plans and forecasts for future time periods.

A promise received from a company's customers to pay for goods and services that they received from the company is called a(n.:

1 A account receivable.

2 B account payable.

3 C revenue.

4 D expense.

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.

3 C Managerial accounting provides information for the public.

4 D Managerial accounting provides information for taxing authorities.

There are relatively few types of revenue Which of the following in NOT a type

1 A assets of the shareholders.

2 B assets of the company only.

3 C assets of the board of directors.

4 D employees of the company.

Lindsey Smith decided to start her own CPA practice as a professional

corporation, Smith CPA PC Her corporation purchased an office building for

$35,000 which her real estate agent said was worth $50,000 in the current market 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

The ability to raise large amounts of capital is a key characteristic of a:

1 A partnership.

2 B not-for-profit.

3 C corporation.

4 D proprietorship.

Many organizations have contributed to the establishment of generally

accepted accounting principles Which of the following organizations has the primary responsibility for formulating accounting standards?

1 A FASB

2 B CMA

3 C AICPA

4 D SEC

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.

Which of the following is NOT a characteristic of a traditional partnership?

1 A A partnership is owned by shareholders or stockholders.

2 B If a partnership cannot pay its debts, lenders can take the owners' personal assets

to satisfy the obligations.

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

4 D Each partner has the authority to commit the entire partnership to a binding contract.

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

A corporation has all of the following EXCEPT:

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

Which of the following organizations or groups issue an opinion on whether a company's financial statements are a fair representation of the company's financial situation?

1 A SEC

2 B Board of Directors

3 C Shareholders

4 D Independent Accountants (CPAs.

Which of the following are likely to be users of financial accounting

information?

1 A Taxing authorities

2 B Creditors

3 C Potential investors

4 D All of the above

The Ragun Cajun Bar and Grill, Inc has been a popular restaurant in

Beaumont, Texas With no insurance, a recent hurricane has left the business with large losses due to a damaged building and lost business income Which

of the following concepts or principles of accounting will be of the greatest concern to Ragun Cajun's auditors?

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

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 a distinct entity in the eyes of the law.

3 C Corporation ownership is divided into shares of stock.

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 Generally accredited accounting policies

4 D Generally accepted accounting principles

Which of the following are MOST likely to be users of managerial accounting information?

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

1 A A limited liability partnership issues shares of stock to shareholders.

2 B Each partner is liable only for the actions under his or her control.

3 C A limited liability partnership is owned by a single investor.

4 D The limited liability partners are subject to "double taxation."

Businesses can be organized in a variety of forms The types of businesses commonly found in the U.S include all of the following EXCEPT:

1 A corporations.

2 B state government-run companies.

3 C partnerships.

4 D proprietorships.

Dylan Chase is a partner 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

1 A corporate shareholders have limited liability for the debts of the corporation.

2 B most corporations are small or medium-sized companies.

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.

Bill Rogers has three different businesses He has only one bank account for transactions relating to all his various businesses Which of the following concepts or principles of accounting is Bill violating?

1 A Faithful representation principle

2 B Entity concept

3 C Cost principle

4 D Going-concern concept

A financial examination of a company's financial records is called a(n.:

1 A audit.

2 B criminal investigation.

3 C financial analysis.

4 D appraisal.

Which of the following organizations requires publicly owned companies to

be audited by independent accountants (CPAs.?

to the client If he does all of the work himself and takes no legal steps to form

a special organization, which type of business organization, in effect, has he chosen?

1 A Limited liability company

2 B Partnership

3 C Corporation

4 D Proprietorship

Which of the following is TRUE for a proprietorship?

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

2 B The proprietor is not personally liable for the debts of the proprietorship.

3 C A proprietorship has a single owner.

4 D A proprietorship has an indefinite life.

A debt that a corporation owes to an outside party is called:

1 A an asset.

2 B a liability.

3 C stockholders' equity.

4 D revenue.

Which of the following is the CORRECT accounting equation?

1 A Assets + Liabilities = Stockholders' equity

2 B Assets = Liabilities + Stockholders' equity

3 C Assets + Revenue = Stockholders' equity

4 D Assets + Revenue = Liabilities + Expenses

110 Free Test Bank for Financial and Managerial Accounting 3rd Edition by Horngren Multiple Choice Questions-Page 2

A $5,000 account payable is paid by the company 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.

Martin Supply Co received $1,000 cash from a customer which was owed to the company from the previous month Which of the following accounts decreases?

1 A One asset account increases; one liability account increases.

2 B Two asset accounts increase.

3 C One asset account increases; another asset account decreases.

4 D One asset account increases; one equity account increases.

Hamilton Service Co incurred a $500 labor expense and promised to pay the labor agency within 30 days Which account increased?

1 A Accounts receivable

2 B Cash

3 C Accounts payable

4 D Retained earnings

Hamilton Service Company earned $1,000 for services rendered The

customer promised to pay at a later time Which of the following accounts increased?

on the accounts of the company?

1 A Accounts receivable decreases; Retained earnings account decreases.

2 B Cash account increases; Accounts receivable decreases.

3 C Accounts payable increases; Retained earnings account decreases.

4 D Cash increases; Accounts payable decreases.

The assets and liabilities of Matt Wesley Corporation are as follows: Cash,

$10,000; Accounts receivable, $8,200; Supplies, $1,050; Land, $25,000;

Accounts payable, $6,530 What is the amount of stockholders' equity?

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

2 B One asset increases by $5,000; another asset decreases $5,000.

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

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

Assets are $270,000 and stockholders' equity is $90,000 Liabilities will be:

1 A $60,000.

1 A an asset and a liability.

2 B an asset and an equity.

3 C a liability and an equity.

4 D two asset accounts.

Hamilton Service Company earned $1,000 for services rendered The

customer promised to pay at a later time What is the effect on accounts?

1 A Accounts receivable decreases; Retained earnings increases.

2 B Cash and Accounts receivable both increase.

3 C Cash account increases; Accounts receivable decreases.

4 D Accounts receivable increases; Retained earnings increases.

The business receives cash from a customer that is owed to company "on account," based on services rendered to the customer previously 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 One asset increases; one asset decreases.

4 D Assets decrease; stockholders' equity decreases.

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.

Bill purchased office supplies for $500 cash What is the effect on accounts?

1 A Cash account increases; Accounts payable increases.

2 B Cash account increases; Supplies account increases.

3 C Supplies account increases; Cash account decreases.

4 D Supplies account increases; Retained earnings account increases.

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

1 A Either 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.

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.

4 D Assets decrease; stockholders' equity increases.

Hamilton Service Co incurred an $800 repair expense and paid the repair company in cash Which account, besides Cash, decreased?

1 A Retained earnings

2 B Accounts payable

3 C Common stock

4 D Accounts receivable