159 test bank for financial accounting 8th edition

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159 Test Bank for Financial Accounting 8th Edition

True False Questions Free Text Questions

-Multiple Choice Questions-Page 1

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.

The owners’ interest in the assets of a corporation is known as:

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.

Advantages of a corporation include:

1 A a single owner.

2 B the double taxation of distributed profits.

3 C limited liability of the stockholders.

4 D mutual agency.

The owners’ equity of any business is its:

1 A revenues minus expenses.

2 B assets minus liabilities.

3 C assets plus liabilities.

4 D paid-in capital plus assets.

The economic resources of a business that are expected to

produce a benefit in the future are:

All of the following are forms of business organizations

EXCEPT for the:

1 A proprietorship.

2 B limited liability partnership.

3 C limited proprietorship.

4 D limited liability company.

The acronym GAAP stands for:

1 A generally acceptable authorized pronouncements.

2 B government authorized accountant principles.

3 C generally accepted accounting principles.

4 D government audited accounting pronouncements.

The amount that stockholders have invested in a corporation is

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 cost principle.

2 B objectivity principle.

3 C reliability principle.

4 D stable dollar principle.

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

that is going out of business is the:

1 A book value.

2 B current market value.

3 C historical cost.

4 D recorded value.

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.

Which of the following best describes a liability? 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 economic obligations to owners to be paid at some future date by the corporation.

For which form of business ownership are the owners of a

business legally distinct from the business?

Characteristics of a sole proprietor include:

1 A multiple owners.

2 B limited personal liability for all business debts.

3 C a distinct entity, separate from its owner for accounting purposes.

4 D formation under state law.

What type of accounting provides information for decision

makers outside the entity?

1 A is working towards a convergence of standards with the IASB.

2 B will not accept IASB rules.

3 C does not want US companies to adopt IFRS standards.

4 D feels that the global use of IFRS will significantly increase costs of doing global business.

Owners of an LLC are called:

1 A partners.

2 B sole proprietors.

3 C members.

4 D stockholders.

The two main components of stockholders’ equity are:

1 A retained earnings and paid-in capital.

2 B assets and liabilities.

3 C paid-in capital and assets.

4 D net income and retained earnings.

International financial reporting standards are set by the:

1 A IASB.

2 B GAAP.

3 C FASB.

4 D SEC.

The CEO of a business owns a residence in Flagstaff The

company the CEO works for owns a factory in Chandler Which of these properties is considered an asset(s of the business?

1 A The Flagstaff residence only

2 B The Chandler factory only

3 C Both the Flagstaff and Chandler properties

4 D Neither the Flagstaff nor Chandler properties

For accounting purposes, the business entity should be

considered separate from its owners if the business is organized as a:

1 A proprietorship.

2 B corporation.

3 C partnership.

4 D any of the above.

An office building is appraised for $250,000 and offered for sale

at $260,000 The buyer pays $245,000 for the building The building should be recorded on the books of the buyer at:

1 A $250,000.

2 B $260,000.

3 C $245,000.

4 D some other amount.

Examples of liabilities include:

1 A accounts payable and accounts receivable.

2 B accounts payable and land.

3 C investments and owners’ equity.

4 D accounts payable and long-term debt.

An entity that is organized according to state law and in which

ownership units are called stock is a:

1 A proprietorship.

2 B corporation.

3 C partnership.

4 D limited liability company.

The continuity (going-concern assumption of accounting:

1 A enables accountants to ignore the effect of inflation in the accounting records.

2 B holds that the entity will remain in operation long enough to use its existing assets.

3 C maintains that each organization, or section of an organization, stands apart from other organizations and individuals.

4 D ensures that accounting records and statements are based on the most reliable data available.

The stable-monetary-unit assumption of accounting:

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 apart from other organizations and individuals.

4 D enables accountants to ignore the effect of inflation in the accounting records.

A partnership:

1 A is a taxpaying entity.

2 B is not a distinct entity, separate from its owners for accounting purposes.

3 C has mutual agency.

4 D has limited liability for the partners.

The Financial 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.

4 D the American Institute of Certified Public Accountants.

Financial statements are:

1 A standard documents issued by outside consultants who are hired to analyze key operations of the business in financial terms.

2 B the business documents that companies use to report the results of their financial activities to various user groups.

3 C reports created by management that states it is responsible for the acts of the corporation.

4 D the mechanical part of accounting.

An Oklahoma City business paid $15,000 cash for equipment

used in the business At the time of purchase, the

equipment had a list price of $20,000 When the balance sheet was prepared, the value of the equipment was

$22,000 What is the relevant measure of the value of the equipment?

1 A Historical cost, $15,000

2 B Fair market cost, $20,000

3 C Current market cost, $22,000

4 D $15,000 on the day of purchase, $22,000 on balance sheet date

Accountants follow guidelines for professional measurement

and disclosure of financial information called:

1 A IASB.

2 B GAAP.

3 C FASB.

4 D SEC.

To be useful, accounting information must have the

fundamental qualitative characteristics of:

1 A comparability and relevance.

2 B relevance and faithful representation.

3 C materiality and understandability.

4 D faithful representation and timeliness.

Management accounting:

1 A includes information such as budgets and forecasts.

2 B is used to make strategic decisions for the entity.

3 C must be relevant to decision makers within the entity.

4 D is all of the above.

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.

All of the following are characteristics of useful accounting

When information is important enough to the informed user, so

that, if it was omitted or erroneous, it would make a

difference in the user’s decision, it is:

1 A comparable.

2 B material

3 C timely.

4 D understandable.

Accounting information is subject to the constraints of:

1 A comparability and consistency.

2 B comparability and verifiability.

3 C materiality and cost.

4 D relevance and faithful representation.

Which of the following is NOT an asset?

1 A Inventory

2 B Accounts payable

3 C Accounts receivable

4 D Cash

109 Free Test Bank for Financial Accounting 8th Edition

by Harrison Multiple Choice Questions-Page 2

An example of a selling, general, and administrative expense is:

1 A cost of goods sold.

2 B sales.

3 C sales commissions paid to employees.

4 D interest expense.

Dividends appear on:

1 A the Statement of Retained Earnings.

2 B both the Statement of Retained Earnings and the Income Statement.

3 C the Income Statement.

4 D the Balance Sheet.

When total expenses exceed total revenues, the result is a:

1 A net profit.

2 B net loss.

3 C dividend.

4 D net earnings.

The ending balance in Retained Earnings appears on the:

1 A Balance Sheet only.

2 B Balance Sheet and Statement of Retained Earnings.

3 C Statement of Retained Earnings only.

4 D Income Statement and Statement of Cash Flows.

A company’s gross profit for the period is reported on the:

1 A Balance Sheet.

2 B Income Statement.

3 C Statement of Cash Flows.

4 D Statement of Retained Earnings.

If assets increase $210,000 during a given period and liabilities

increase $65,000 during the same period, stockholders’ equity must:

1 A increase $145,000.

2 B decrease $275,000.

3 C decrease $145,000.

4 D increase $275,000.

Net income is computed as:

1 A revenues – expenses – dividends.

2 B revenues + expenses.

3 C revenues – expenses.

4 D revenues – expenses + dividends.

Stockholders’ equity for Commerce Corporation on January 1,

2010 and December 31, 2010 were $60,000 and $75,000, respectively Assets on January 1, 2010 and December 31,

2010 were $115,000 and $105,000, respectively Liabilities

on January 1, 2010 were $55,000 What is the amount of liabilities on December 31, 2010?

1 A $40,000

2 B $15,000

3 C $30,000

4 D The amount is indeterminable from the given information.

Which statement(s summarizes the revenues and expenses of

an entity?

1 A Balance Sheet only

2 B Statement of Cash Flows and Income Statement

3 C Statement of Retained Earnings and Statement of Operations

4 D Income Statement

Which of the following financial statements shows the net

increase or decrease in cash during the period?

1 A Balance Sheet only

2 B Statement of Operations

3 C Statement of Retained Earnings and Balance Sheet

4 D Statement of Cash Flows

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.

The statement that reports revenues and expenses for the

1 A decrease revenue on the income statement.

2 B decrease retained earnings on the statement of retained earnings.

3 C increase expenses on the income statement.

4 D decrease operating activities on the statement of cash flows.

Net income is:

1 A added to assets on the balance sheet.

2 B deducted from beginning retained earnings on the retained earnings statement.

3 C added to beginning retained earnings on the retained earnings statement.

4 D deducted from ending retained earnings on the retained earnings statement.

Which of the following must be added to beginning Retained

Earnings to compute ending Retained Earnings?

1 A Net income

2 B Expenses

3 C Dividends

4 D All of the above

Receivables are classified as:

2 B may cover a period of time or only one day in time, like a snapshot photograph.

3 C covers a defined period of time.

4 D reports the results of operations since the inception of the business.

The balance sheet is also known as the:

1 A statement of profit and loss.

2 B operating statement.

3 C assets statement.

4 D statement of financial position.

Revenues are:

1 A decreases in assets resulting from delivering goods or services to customers.

2 B increases in liabilities resulting from delivering goods or services to customers.

3 C increases in retained earnings resulting from delivering goods or services to customers.

4 D decreases in retained earnings resulting from delivering goods or services to customers.

The sum of "outsider claims" plus "insider claims" equals:

1 A net income.

2 B total liabilities.

3 C total assets.

4 D total stockholders’ equity.

Cost of goods sold appears on the:

1 A Statement of Retained Earnings as an addition to beginning retained earnings.

2 B Income Statement as a deduction from sales.

3 C Balance Sheet as a deduction from sales.

4 D Income Statement as a deduction from gross profit.

Common stock appears on:

1 A the Balance Sheet.

2 B the Income Statement.

3 C the Statement of Cash Flows and the Statement of Retained Earnings.

4 D none of the above.

Gains and losses appear on which of the financial statements

listed below?

1 A Balance Sheet

2 B Income Statement

3 C Statement of Cash Flows

4 D Statement of Retained Earnings

Dividends:

1 A are expenses.

2 B always affect net income.

3 C are distributions to stockholders of assets (usually cash generated by net income.

4 D are distributions to stockholders of assets (usually cash generated by a favorable balance in retained earnings.

The portion of net income that the company has kept over a

period of years is called:

Which financial statement provides a "snapshot photo" of one

moment in time for the whole entity?

1 A Balance Sheet only

2 B Income Statement only

3 C Statement of Retained Earnings and Income Statement

4 D Statement of Cash Flows only

At the beginning of the period, assets were $490,000 and

stockholders’ equity was $240,000 During the year,

assets increased by $60,000, liabilities increased by

$40,000, and stockholders’ equity increased by $20,000 Beginning liabilities must have been:

1 A $230,000.

2 B $250,000.

3 C $280,000.

4 D $300,000.

A corporation’s paid-in capital includes:

1 A revenues and expenses.

2 B assets and liabilities.

1 A increases in liabilities resulting from purchasing assets.

2 B increases in assets resulting from operations.

3 C increases in retained earnings resulting from operations.

4 D decreases in retained earnings resulting from operations.

The income statement presents a summary of the:

1 A cash inflows and outflows of an entity.

2 B assets and liabilities of an entity.

3 C revenues and expenses of an entity for a specific time period.

4 D changes that occurred in the stockholders’ equity of an entity.

An investor wishing to assess a company’s overall financial

position at the end of the period would probably examine the:

1 A Statement of Cash Flows and the Income Statement.

2 B Income Statement only

3 C Balance Sheet.

4 D Statement of Retained Earnings.