166 test bank for financial accounting 9th edition harrison

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166 Test Bank for Financial Accounting 9th Edition

Harrison

True False Questions Free Text Questions

-Mutiple Choice Questions - Page 1

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 mingled 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

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 assets of a company:

1 A) must equal the liabilities of the company

2 B) include property, plant, and equipment and common stock

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

4 D) include merchandise inventory and accounts payable

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 fair market value.

3 C) historical cost

4 D) recorded value

means that the accounting information for a company

must be prepared in such a way as to be capable of being compared with information from other companies in the same period and consistent with similar information for that company in previous periods

1 A) Verifiability

2 B) Timeliness

3 C) Understandability

4 D) Comparability

Another way to state the accounting equation is:

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

2 B) Assets = Liabilities + Retained Earnings

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

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

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 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

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

A construction company paid $80,000 cash for equipment used

in the business At the time of purchase, the equipment had a list price of $90,000 When the balance sheet was prepared, the value of the equipment was $83,000 At what amount should the equipment be recorded in the records

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

Verifiability means that the information:

1 A) is timely

2 B) is understandable

3 C) must be capable of being checked for accuracy

4 D) is material and relevant

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 apart from other organizations and individuals.

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

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

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) international accounting financial standards

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

Regarding financial statement elements:

1 A) assets must provide immediate benefits to the company

2 B) stockholders' equity represents the "outsider claims" to the assets

3 C) merchandise inventory and dividends are assets of a company

4 D) revenues are inflows of resources that increase retained earnings

In which form of business ownership are the owners of a

business legally distinct from the business?

1 A) Corporation

2 B) Partnership.

3 C) Proprietorship

4 D) All of the above

Owners of an LLC are called:

1 A) partners

2 B) sole proprietors

3 C) members

4 D) stockholders

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 a partnership

2 B) for accounting purposes, a proprietorship is a distinct entity

3 C) the records of a partnership can include the partner's personal finances

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

When preparing accounting information, understand that:

1 A) the auditors are primarily responsible for preparing the information

2 B) the cost of disclosure should not exceed the expected benefits to the users

3 C) accounting information can be produced quickly and inexpensively

4 D) all information must be disclosed for a complete understanding of the underlying economic facts

The CEO of ABC Company owns a vacation home in Hawaii

ABC owns a factory in Detroit where they are

headquartered Which of these properties is considered

an asset(s) of the business?

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

Shareholders of a corporation:

1 A) receive one vote for each share of stock they own

2 B) have unlimited liability

3 C) have mutual agency

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

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

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

When dealing with the elements of the financial statements, it is

important to consider that:

1 A) the current portion of long-term debt is the amount due within the next year and must be disclosed separately

2 B) fixed assets are short-term assets the company plans on selling in the near future

3 C) cost of goods sold is a component of paid-in capital

4 D) retained earnings is a long-term liability account

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

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

An entity that must pay its own income taxes is:

1 A) proprietorship

2 B) partnership

3 C) limited-liability company

4 D) corporation

If a company prepares its financial statements three years after

the end of their accounting period, they have violated the qualitative characteristic of :

3 C) newly issued U.S accounting standards have conformed U.S practices to IFRS

4 D) there is no terminology difference between GAAP and IFRS

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.

Decision makers who use accounting include:

1 A) the SEC

2 B) investors

3 C) managers

4 D) all of the above

Which type of business organization transacts the most

business and is the largest in terms of assets, income, and number of employees?

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

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

Historical cost:

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

Which of the following is a true statement about the

characteristics of partnerships?

1 A) In a limited-liability partnership, a wayward partner can create a large liability for the other partners

2 B) General partners have mutual agency and limited liability.

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

4 D) The partnership agreement must be in writing

The type of accounting that makes projections to determine if a

company should build a new store is:

1 A) financial accounting

2 B) business accounting

3 C) managerial accounting

4 D) projection accounting

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

111 Free Test Bank for Financial Accounting 9th Edition

by Harrison Mutiple Choice Questions - Page 2

Which financial statement is dated at the moment in time when

the accounting period ends?

1 A) Balance sheet

2 B) Income statement

3 C) Statement of retained earnings and income statement

4 D) Statement of cash flows

On January 1, 2010, total assets for Liftoff Technologies were

$125,000; on December 31, 2010, total assets were

$145,000 On January 1, 2010, total liabilities were

$110,000; on December 31, 2010, total liabilities were

$115,000 What is the amount of the change and the

direction of the change in Liftoff Technologies'

stockholders' equity for 2010?

1 A) Decrease of $15,000

2 B) Increase of $15,000

3 C) Increase of $30,000

4 D) Decrease of $30,000

Net income is computed as:

1 A) revenues - expenses - dividends

2 B) revenues + expenses

3 C) revenues - expenses

4 D) revenues - expenses + dividends

Dividends:

1 A) are paid by a business to shareholders as compensation for services

2 B) 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

Receivables are classified as:

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

An entity's equity consists of two accounts, Amy Jones, Capital,

and Mindy Lenz, Capital This indicates the entity is a:

1 A) cost of sales is another term for gross profit

2 B) cost of goods sold is the major expense of merchandising entities

3 C) companies are not allowed to offset items such as interest income and interest expense against each other

4 D) net sales is equal to sales revenue less cost of goods sold

Which of the following would appear on the balance sheet?

1 A) Assets and operating cash flows

2 B) Dividends and liabilities

3 C) Assets and liabilities

4 D) Owners' equity and revenues

The income statement:

1 A) is not dated

2 B) must cover only a month in time

3 C) covers a defined period of time

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

Revenues were $210,000, expenses were $140,000, and cash

dividends were $45,000 What was the net income and the change in retained earnings for the period?

1 A) Net income was $70,000; the change in retained earnings was $70,000

2 B) Net income was $25,000; the change in retained earnings was $45,000.

3 C) Net income was $70,000; the change in retained earnings was $25,000

4 D) Net income was $45,000; the change in retained earnings was $45,000

On the income statement:

1 A) the top line is net income

2 B) all expenses must have the word "expenses" in their title

3 C) gains and liabilities are reported

4 D) amounts can be reported in millions of dollars to reduce clutter

If an investor wants to know how much cash the company

generated and spent during the year, the main financial statement they should look at is the:

1 A) balance sheet

2 B) statement of retained earnings

3 C) income statement

4 D) statement of cash flows

All of the following will appear on the income statement

Which of the following must be added to beginning Retained

Earnings to compute ending Retained Earnings?

Refer to Exhibit 1.3 Total assets for ABC Company at the end of

the year were:

1 A) $74,000

2 B) $99,000

3 C) $141,000

4 D) $149,000

When preparing a company's income statement:

1 A) commonly controlled corporations cannot combine all of their revenues and

expenses and report them as one total

2 B) the statement is prepared as of a specific date

3 C) the term "other" generally notes that the amount is not sufficiently material to label it separately

4 D) expenses are listed before revenues

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

On the income statement:

1 A) selling, general and administrative expenses are the costs of operations that are not directly related to merchandise purchases and occupancy

2 B) income tax expense will not be found on the income statement since corporations

do not pay taxes

3 C) net income is another term for income from continuing operations

4 D) selling, general and administrative expenses are shown before gross profit

Refer to Exhibit 1.3 Net income for ABC Company for the year

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

Common stock:

1 A) is issued to shareholders as evidence of their ownership

2 B) is only issued by large, international companies

3 C) is the basic component of retained earnings

4 D) represents the amount the company owes its shareholders

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

Cost of goods sold:

1 A) is considered a selling expense

2 B) is the direct cost of the product to the company

3 C) is classified as revenue on the income statement

4 D) is the same as gross profit

The correct data flow from one financial statement to the next

A potential investor interested in evaluating a company's

financial earning performance for the current period

would probably examine which of the following financial statements?

1 A) Balance Sheet only

2 B) Income Statement only

3 C) Statement of cash flows and income statement

4 D) Statement of retained earnings and balance sheet

Which of the following increases retained earnings?

1 A) Net loss

2 B) Net income

3 C) Expenses

4 D) Dividends

Refer to Exhibit 1.3 Total liabilities for ABC Company at the end

of the year were:

1 A) $12,000

2 B) $17,000

3 C) $33,000

4 D) $45,000

Which statement(s) summarizes the revenues, gains, expenses,

and losses of an entity?

1 A) Balance sheet

2 B) Statement of cash flows and income statement

3 C) Statement of retained earnings and statement of operations

4 D) Income statement

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

When a company is determining their year end:

1 A) it must be December 31 if they are a retail store

2 B) a calendar year can end at the end of any month

3 C) they may want to adopt a fiscal year that ends at the low point of their operations

4 D) a fiscal year end ends on December 31

At the end of the current accounting period, account balances

were as follows: Cash, $15,000; Accounts Receivable,

$20,000; Common Stock, $8,000; Retained Earnings,

$14,000 Liabilities for the period were:

1 A) $13,000

2 B) $20,000

3 C) $27,000

4 D) $32,000

Expenses of a business include:

1 A) sales and cash equivalents

2 B) common stock and rent

3 C) cost of goods sold and salaries

4 D) retained earnings and utilities

When total expenses exceed total revenues, the result is:

1 A) paid-in capital and common stock

2 B) assets and liabilities

3 C) revenues, expenses, and dividends

4 D) revenues and liabilities

Proprietorships and partnerships:

1 A) have the same equity accounts as a corporation

2 B) identify paid-in capital and common stock separately

3 C) use a single heading for their equity account called Capital

4 D) do not have equity accounts

111 Free Test Bank for Financial Accounting 9th Edition

by Harrison Mutiple Choice Questions - Page 3

Which of the following is a correct statement about long-term

assets?

1 A) Accumulated depreciation increases the cost of property, plant, and equipment on the balance sheet

2 B) Intangibles are long-term assets with no physical form

3 C) Long-term investments can never be sold by the company

4 D) Other long-term assets include accumulated depreciation

Continuing negative cash flow from which of the following

activities can lead to bankruptcy?

1 A) Equity activities

2 B) Operating activities