151 test bank for principles of financial accounting 11th edition by needles

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151 Test Bank for Principles of Financial Accounting 11th Edition by Needles

Multiple Choice Questions-Page 1

The communication stage of accounting is accomplished by

1 a.storing data.

2 b.reporting to decision makers.

3 c.processing data.

4 d.recording data.

A company's ability to attract and hold investment capital

ultimately depends on its

1 a.Financial Accounting Standards Board.

2 b.American Institute of Certified Public Accountants.

3 c.Securities and Exchange Commission.

4 d.Internal Revenue Service.

Which of the following is an example of an operating activity?

1 a.Obtaining capital from owners

2 b.Selling goods and services to customers

3 c.Purchasing equipment

4 d.Selling land

An accounting measurement is concerned with all except which

1 a.the day-by-day accumulation of interest.

2 b.the wear and tear on machinery.

3 c.the sale of goods and services.

4 d.losses from fire, flood, and theft.

A primary user of accounting information with a direct financial interest in the business is a

The measurement stage of accounting is accomplished by

The separate entity concept requires that

1 a.the personal assets and liabilities of an owner not be shown on the business's financial statements.

2 b.transactions that involve an exchange of value be kept separate from those that do not.

3 c.tax records be kept separate from financial reporting records.

4 d.a separate set of books be established for each segment of a business.

Which of the following is the most appropriate and modern

definition of accounting?

1 a.Electronic collection, organization, and communication of vast amounts of information

2 b.The interconnected network of subsystems necessary to operate a business

3 c.A means of recording transactions and keeping records

4 d.The measurement, processing, and communication of financial information about an identifiable economic entity

One user of accounting information with an indirect financial interest in a business is

Sarbanes-1 a.it applies to publicly traded companies.

2 b.it shields chief executives from criminal penalties.

3 c.it orders the SEC to draw up certain rules.

4 d.its primary goal is to regulate financial reporting and the accounting profession.

Which of the following is an example of a financing activity?

2 b.Obtaining a bank loan

3 c.Paying taxes to the government

4 d.Producing goods and services

The intentional preparation of misleading financial statements, known as fraudulent financial reporting, can result from all of the following except

1 a.the misapplication of accounting principles.

2 b.the manipulation of inventory records.

3 c.fictitious sales or orders.

4 d.recording a revenue that has been earned but not yet received.

Which of the following transactions does not involve an

exchange of value?

1 a.Payment of a debt

2 b.Purchase of a building on credit

3 c.Borrowing money

4 d.Loss from theft

Which of the following is legally a separate entity from its

owner(s)?

1 a.Sole proprietorship only

2 b.Sole proprietorship and partnership only

4 d.Wear and tear on equipment

Which of the following is an agency of the U.S government?

The correct order of the three stages of accounting is

1 a.communication, processing, and measurement.

2 b.measurement, communication, and processing.

3 c.processing, measurement, and communication.

4 d.measurement, processing, and communication.

54 Free Test Bank for Principles of Financial Accounting 11th Edition by Needles Multiple Choice Questions-Page 2

The purpose of an audit is to

1 a.determine whether or not a company is a good investment.

2 b.comply with income tax regulations.

3 c.determine whether or not a company is a good credit risk.

4 d.ascertain that the financial statements follow GAAP.

Which of the following is the correct accounting equation?

1 a.Assets = Liabilities + Owner's Equity

2 b.Assets + Owner's Equity = Liabilities

3 c.Assets = Liabilities – Owner's Equity

4 d.Assets + Liabilities = Owner's Equity

Standards for state and local governments are established by the

Generally accepted accounting principles

1 a.are changing continually.

2 b.are sound in theory but rarely used in practice.

3 c.have eliminated all the weaknesses in accounting practice.

4 d.are accounting rules formulated by the Internal Revenue Service.

Which of the following assets could be described as

1 a.in the financing activities section.

2 b.in the investing activities section.

3 c.in the operating activities section.

4 d.nowhere on the statement.

All of the following statements about corporations are true, except

1 a.they are chartered by the state.

2 b.ownership is represented by shares of stock.

3 c.the sale of stock does not dissolve the business.

4 d.the stockholders have direct control of the business.

The audit committee is responsible for all of the following except

1 a.engaging the company's independent auditors.

2 b.assuring that reliable accounting records are kept.

3 c.auditing the company's financial statements.

4 d.ascertaining that the company safeguards its resources.

Which of the following is a regulatory agency?

1 a.partners must share profits and losses equally.

2 b.a change in ownership will dissolve the partnership.

3 c.any partner can enter into a binding agreement with a third party.

4 d.all partners have unlimited liability.

Which of the following items has no effect on owner's equity?

2 b.in the operating activities section.

3 c.in the investing activities section.

4 d.in the financing activities section.

An example of a monetary asset is

1 a.Accounts Receivable.

2 b.Copyright.

3 c.Retained Earnings.

4 d.Land.

The best definition of assets is the:

1 a.cash owned by the company.

2 b.resources belonging to a company having future benefit to the company.

3 c.collection of resources belonging to the company and the claims on these resources.

4 d.owner's investment in the business.

The development of international accounting standards is the primary function of the

1 a.IRS.

2 b.AICPA.

3 c.IASB.

4 d.PCAOB.

The net income figure appears in all the following financial

statements except the

1 a.statement of cash flows.

2 b.income statement.

3 c.statement of owner's equity.

4 d.balance sheet.

Which of the following accounts is not considered an asset?

1 a.Internal Revenue Service.

2 b.Financial Accounting Standards Board.

3 c.American Institute of Certified Public Accountants.

4 d.Federal Reserve Board.

Carrying out professional responsibilities with competence and diligence is called

1 a.integrity.

2 b.independence.

3 c.objectivity.

4 d.due care.

Which of the following forms of organization are considered to

be separate entities by accountants?

1 a.Partnerships only

2 b.Sole proprietorships only

3 c.Corporations only

4 d.Sole proprietorships, partnerships, and corporations

A liability would not include an obligation to

1 a.transfer assets.

2 b.hire an employee.

3 c.pay cash.

4 d.provide services.

An auditor maintains no direct financial interest in the company

he or she is auditing The principle being followed is

1 a.independence.

2 b.integrity.

3 c.objectivity.

4 d.due care.

Which of the following financial statements is concerned with the enterprise at a point in time?

1 a.Statement of owner's equity

2 b.Income statement

3 c.Statement of cash flows

4 d.Balance sheet

Which of the following is not one of the broad principles

underlying the accountant's code of professional ethics?

The primary external users of accounting information are

investors and management

1 True

2 False

The Sarbanes-Oxley Act orders the SEC to hold chief

executives and CFOs responsible for the accuracy of their company's financial statements

1 True

2 False

Accounting ratios are useful as management performance measures

A company's management information system is a subsystem

of its accounting information system

1 True

2 False

Regulatory agencies are considered information users with a direct financial interest.

Obtaining funds from a bank is an example of an investing activity

The intentional preparation of misleading financial statements

is referred to as fraudulent financial reporting

2 False

Fraudulent financial reporting can result from the

misapplication of accounting principles

The personal resources of any partner can be called upon to pay the obligations of the partnership

For reporting purposes, the personal assets and debts of a

business owner should be combined with the assets and debts

1 True

2 False

Financing a business means obtaining funds so the business can begin and continue operating

For accounting purposes, a business and its owners are

considered separate entities

Knowledge of the exchange rate is necessary to apply the money measure concept in case of international transactions

One way of stating the accounting equation is: Assets +

Liabilities = Owner's Equity

1 True

2 False

The day-by-day accumulation of interest is considered a

transaction involving an exchange of value

Exchange rates for currency change daily according to the

supply and demand for each currency

Corporate governance is the oversight of a company's

management performance and ethics by its board of directors

1 True

2 False

Net assets equal assets plus liabilities

1 True

2 False

Objectivity means carrying out one's professional

responsibilities with competence and diligence

Generally accepted accounting principles encompass the

conventions, rules, and procedures necessary to define

accepted accounting practice at a particular time

1 True

The statement of owner's equity discloses the owner's

withdrawals made during the period

The Internal Revenue Service is responsible for issuing

accounting standards for state and local governments

1 True

2 False

Companies whose securities are sold to the general public must adhere to standards established by the Securities and

Exchange Commission

1 True

2 False

The statement of cash flows discloses significant events related

to the operating, investing, and financing activities of a

The accounting fees earned by an accounting firm would

appear on its balance sheet

The purchase of land with cash would be disclosed on the

statement of cash flows

Owner's equity equals cumulative net income or loss plus

owner investments minus cumulative withdrawals

The account ‘Wages Payable’ would appear on the income

Free Text Questions

Distinguish between profitability and liquidity.

Answer Given

Profitability is the ability to earn enough income to attract and hold investment capital, whereas liquidity means having enough funds on hand to pay debts when they fall due.

Explain why each of the following persons or groups would be interested in seeing the financial statements of a company Also state whether each has a direct or indirect financial interest a Potential investor b Internal Revenue Service c A labor union

d Securities and Exchange Commission e Potential creditor f Management g Economic planners

Answer Given

a To help determine if the prospects for a profitable investment is good relative to other investment opportunities (direct interest)

At the beginning of the year, Peters Company's assets were

$150,000 and its owner's equity was $100,000 During the year, assets decreased $30,000 and liabilities increased $15,000 What was the owner's equity at the end of the year?

Independence means having no financial or other compromising ties with the company under audit To give the public confidence in their work, CPAs must maintain their independence whenever they conduct an audit.

List five possible users of a set of financial statements and

state what each would be interested in learning from its review.

Answer Given

Possible users and their reasons for interest could be:

How does the statement of owner's equity relate to the income statement and the balance sheet?

Answer Given

The statement of owner's equity provides a link between the income statement and the balance sheet Specifically, it takes the net income or loss figure from the income statement and uses it (along with investments and withdrawals) to arrive at the owner's capital balance to be presented on the balance sheet.

What is the responsibility of the independent auditor? Who is responsible for the content of the published financial

statements?

Answer Given

The responsibility of the independent auditor is to express an opinion about the

financial statements of the company being audited Company’s management is

responsible for the content of the published financial statements.

Kalis Company's owner's equity equals one-third of the

company's total assets The company's liabilities are $120,000 What is the amount of the company's owner's equity?

Answer Given

Assets = Liabilities + Equity

Dougan Company's owner's equity equals one-half of the

company's total assets The company's liabilities are $140,000 What is the amount of the company's owner's equity?

Answer Given

Assets = Liabilities + Equity

Which four types of transactions affect owner's equity, and how

do they affect it?

Answer Given

Assets = Liabilities + Equity

Why would it be less risky for a wealthy individual to

incorporate his or her business rather than to operate it as a sole proprietorship or partnership?

Answer Given

With a sole proprietorship or partnership, the owner or owners have unlimited liability That is, they may be required to use personal assets to satisfy business debts The liability of a corporate shareholder, however, is limited to his or her investment in the business.

At the beginning of the year, Fourman Company's assets were

$270,000 and its owner's equity was $201,000 During the year, assets decreased by $35,000 and liabilities increased by

$10,000 What was owner's equity at the end of the year?

Answer Given

[($270,000 – $35,000) – ($69,000 + $10,000)] = $156,000