223 test bank for financial accounting fundamentals 4th edition

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223 Test Bank for Financial Accounting Fundamentals 4th Edition

True False Questions Free Text Questions

-Mutiple Choice Questions - Page 1

Recording the items on the financial statements in dollars is

done because of the:

1 A Objectivity principle

2 B Monetary unit principle

3 C Revenue recognition principle

4 D Going-concern principle

5 E Cost principle

The question of when revenue should be recognized on the

income statement (according to GAAP) is addressed by the:

1 A Revenue recognition principle

2 B Going-concern principle

3 C Objectivity principle

4 D Business entity principle

5 E Cost principle

The owners of a partnership:

1 A Have created an entity that can also be called a sole proprietorship.

2 B Have unlimited liability.

3 C Have to have a written agreement in order to be legal.

4 D Have created a legal organization separate from its owners.

5 E Are called shareholders.

Identifying business activities requires selecting transactions

and events relevant to an organization Which of the

following events would be recorded in the accounting records of Acme Car Wash?

1 A Acme washes 500 cars.

2 B J.B Smith, a customer, buys lunch at the restaurant next door to Acme while waiting for her car to be washed.

3 C Clean Company, a supplier, sells 50 pounds of soap to ABC Company.

4 D Sudsey Company, a supplier, goes out of business.

5 E Acme hires Andrea as a receptionist.

The accounting guideline prescribing that financial statement

information be supported by independent, unbiased

evidence other than someone's belief or opinion is the:

1 A Business entity principle

2 B Monetary unit principle

3 C Going-concern principle

4 D Objectivity principle

5 E Full disclosure principle

Which accounting assumption assumes that all accounting

information can be reported monthly or yearly?

1 A Business entity assumption

2 B Monetary unit assumption

3 C Value assumption

4 D Cost assumption

5 E Time period assumption

Generally Accepted Accounting Principles:

1 A Focus on the review of a situation.

2 B Do not require financial statements.

3 C Never change.

4 D Intend to make information on the financial statements relevant, reliable, and comparable.

5 E Oversees Security and Exchange Commission.

Which of the following accounting principles dictates when

expenses are recognized?

1 A Revenue recognition principle

2 B Monetary unit principle

3 C Business entity principle

4 D Matching principle

5 E Full disclosure principle

What is the opportunity component of the fraud triangle?

1 A A person thinks that there is a way to commit fraud without much chance of getting caught.

2 B A person has a really good reason to commit fraud.

3 C A person does not think of the fraudulent activity as bad.

4 D A person persuades two or more other people to assist with the fraud.

5 E A person is concerned about the impact of their actions on society.

Congress passed the Sarbanes-Oxley Act to

1 A Provide jobs to U.S accountants and limit the number of jobs sent outside the country.

2 B Impose penalties on CEO's and CFO's who knowingly sign off on bogus accounting reports, although at this time the penalties are token amounts.

3 C Help curb financial abuses at companies that issue their stock to the public.

4 D Force auditors to attest to the absolute accuracy of the financial statements.

5 E Require that all companies publicly disclose their internal control plans.

The principle that (A) requires revenue to be recognized at the

time it is earned, (B) allows the inflow of assets

associated with revenue to be in a form other than cash, and (C) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services is

5 E Business entity principle

The International Accounting Standards Board (IASB)

1 A Hopes to create harmony among accounting practices of different countries.

2 B Is the government group that establishes reporting requirements for companies that issue stock to the public.

3 C Has the authority to impose its standards on companies

4 D Is the only source of U.S generally accepted accounting principles (GAAP).

5 E Applies only to companies that are members of the European Union.

The Maximum Experience Company acquired a building for

$500,000 Maximum Experience had an appraisal done and found that the building was worth $575,000 The seller had paid $300,000 for the building six years ago Which accounting principle would prescribe that Maximum

Experience record the building on its records at

$500,000?

1 A Monetary unit principle

2 B Going-concern principle

3 C Cost principle

4 D Business entity principle

5 E Revenue recognition principle

To include the personal assets and transactions of a business's

owner in the records and reports of the business would

be in conflict with the:

1 A Objectivity principle

2 B Realization principle

3 C Business entity principle

4 D Going-concern principle

5 E Revenue recognition principle

The organization that attempts to create more harmony among

the accounting practices of different countries by

identifying preferred practices and encouraging their

worldwide acceptance is the:

The objectivity principle:

1 A Means that information is supported by independent, unbiased evidence.

2 B Means that information can be based on what the preparer thinks is true.

3 C Means that financial statement should contain information that is optimistic.

4 D Means that a business may not recognize revenue until cash is received.

5 E Means the assets acquired must be recorded at what the company paid for them.

Which of the following is the correct sequence for the heading

for ABC Company’s 2013 balance sheet?

1 A ABC Company, For the year ended 12/31/13, Balance Sheet

2 B For the year ended 12/31/13, Balance Sheet, ABC Company

3 C Balance Sheet, 12/31/13, ABC Company

4 D 12/31/13, ABC Company, Balance Sheet

5 E ABC Company, Balance Sheet, 12/31/13

A corporation:

1 A Is a legal entity separate and distinct from its owners.

2 B Must have many owners.

3 C Has shareholders who have unlimited liability for the acts of the corporation.

4 D Is the same as a limited liability partnership.

5 E Does not have to pay taxes.

Internal users of accounting information always include:

1 A Has replaced accounting.

2 B Has not changed the work that accountants do.

3 C Has freed accounting professionals to concentrate more on the analysis and interpretation of information.

4 D In accounting has replaced the need for decision makers.

5 E In accounting is only available to large corporations.

The primary objective of financial accounting is:

1 A To serve the decision-making needs of internal users.

2 B To provide financial statements to help external users analyze and interpret an organization's activities.

3 C To monitor and control company activities.

4 D To provide information on both the costs and benefits of managing products and services.

5 E To know what, when and how much to produce.

Which of the following is the primary purpose of accounting?

1 A To establish a business.

2 B To identify, record, and communicate business transactions.

3 C To earn a large profit.

4 D To reduce taxes owed for the business.

5 E To establish credit for a company.

The private board that currently has the authority to establish

U.S generally accepted accounting principles is the:

1 A Only acquired with cash.

2 B Something the company owns.

3 C Only contributed by stockholders.

4 D A company’s obligation to pay.

5 E Is also called contributed capital.

Which of the following statements best describes the

relationship of U.S GAAP and IFRS?

1 A They are identical.

2 B They are entirely different conceptual frameworks.

3 C They are similar but not identical.

4 D Neither has anything to do with accounting.

5 E They both relate only to publicly traded companies.

A parcel of land is: offered for sale at $150,000, assessed for tax

purposes at $95,000, recognized by its purchasers as

being worth $140,000, and purchased for $137,000 The land should be recorded in the purchaser's books at:

1 A $95,000

2 B $137,000

3 C $138,500

4 D $140,000

5 E $150,000

Ethical behavior requires:

1 A That an auditor’s pay not depend on the figures in the client's reports.

2 B Auditors to invest in businesses they audit.

3 C Analysts to report information favorable to their companies.

4 D Managers to use accounting information to benefit themselves.

5 E That an auditor provides a favorable opinion.

Businesses can take all of the following forms except:

1 A Sole proprietorship

2 B Common stock

3 C Partnership

4 D Corporation

5 E Limited liability corporation

Internal users of accounting information include:

1 A Includes a general partner with unlimited liability.

2 B Is subject to double taxation.

3 C Has owners called stockholders.

4 D Is the same as a corporation.

5 E Must only have two partners.

The principle prescribing that financial statements reflect the

assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

1 A Going-concern principle

2 B Business entity principle

3 C Objectivity principle

4 D Cost principle

5 E Monetary unit principle

Which of the following elements are found on the income

1 A Is a concern for the impact of one's actions on society as a whole.

2 B Is a code that helps in dealing with confidential information.

3 C Is required by the SEC.

4 D Requires that all businesses conduct social audits.

5 E Is mandated by the federal government.

Marian Mosely is the owner of Mosely Accounting Services

Which accounting assumption requires Marian to keep her personal financial information separate from the financial information of Mosely Accounting Services?

1 A Monetary unit assumption

2 B Going-concern assumption

3 C Cost assumption

4 D Business entity assumption

5 E Full disclosure assumption

The accounting principle that requires accounting information

to be based on actual cost and requires assets and

services to be recorded initially at the amount of cash or cash equivalent given in exchange is the:

1 A Accounting equation

2 B Cost principle

3 C Going-concern principle

4 D Realization principle

5 E Business entity principle

The area of accounting aimed at serving the decision-making

needs of internal users is:

According to generally accepted accounting principles, a

company's balance sheet should show the company's assets at:

1 A The cash equivalent value of what was given up.

2 B The current market value of the assets at the balance sheet date.

3 C The cash paid to acquire them, even if something other than cash was given in the exchange.

4 D The best estimate from a certified internal auditor.

5 E The objective value to external users.

Why are ethics crucial to accounting?

1 A Ethical behavior creates the most profit for the business.

2 B Ethics are a tool which help the accountants balance the accounting equation.

3 C For accounting information to be useful, it must be trusted and therefore the result of ethical decisions.

4 D Ethics are important to consider when applying GAAP but do not apply to

international accounting issues.

5 E Ethics are a way to compute revenues and expenses, but they do not apply to assets, liabilities, and owners’ equity.

On December 15, 2013, Myers Legal Services signed a $50,000

contract with a client to provide legal services to the

client in 2014 Which accounting principle would require Myers Legal Services to record the legal fees revenue in

2014 and not 2013?

1 A Monetary unit principle

2 B Going-concern principle

3 C Cost principle

4 D Business entity principle

5 E Revenue recognition principle

122 Free Test Bank for Financial Accounting

Fundamentals 4th Edition by Wild Mutiple Choice Questions - Page 2

The description of the relation between a company's assets,

liabilities, and equity, which is expressed as Assets =

Liabilities + Equity, is known as the:

1 A Income statement equation.

2 B Accounting equation.

3 C Business equation.

4 D Return on equity ratio.

5 E Net income.

Photometer Company paid off $30,000 of its accounts payable

in cash What would be the effects of this transaction on the accounting equation?

1 A Assets, $30,000 increase; liabilities, no effect; equity, $30,000 increase.

2 B Assets, $30,000 decrease; liabilities, $30,000 decrease; equity, no effect.

3 C Assets, $30,000 decrease; liabilities, $30,000 increase; equity, no effect.

4 D Assets, no effect; liabilities, $30,000 decrease; equity, $30,000 increase.

5 E Assets, $30,000 decrease; liabilities, no effect; equity $30,000 decrease.

Apatha Company has assets of $600,000, liabilities of $250,000,

and equity of $350,000 It buys office equipment on credit for $75,000 The effects of this transaction include:

1 A Assets increase by $75,000 and expenses increase by $75,000.

2 B Assets increase by $75,000 and expenses decrease by $75,000.

3 C Liabilities increase by $75,000 and expenses decrease by $75,000.

4 D Assets decrease by $75,000 and expenses decrease by $75,000.

5 E Assets increase by $75,000 and liabilities increase by $75,000.

Expenses:

1 A Increase retained earnings.

2 B Are increases in retained earnings from a company's earning activity.

3 C Are the costs of assets or services used to earn revenues.

4 D Occur when retained earnings exceed revenue.

5 E Are creditors' claims on assets.

Reebok had income of $150 million and average assets of

$1,800 million Its return on assets is:

1 A 8.33%

2 B 83.3%

3 C 12.0%

1 A Are the means organizations must use to pay for resources.

2 B Involve the acquiring and disposing of resources that an organization uses to acquire and sell its products or services.

3 C Involve defining the ideas, goals, and actions of an organization.

4 D Are the carrying out of an organization's plans.

5 E Involve using resources to research, develop, purchase, produce, and market products and services.

The major activities of a business include:

1 A Operating, investing, making a profit

2 B Investing, making a profit, operating

3 C Making a profit, operating, borrowing

4 D Operating, investing, financing

5 E Investing, making a profit, financing

Return on assets is:

1 A Also called rate of return.

2 B Computed by dividing net income by average total assets.

3 C Computed by multiplying net income by average total assets.

4 D Used in helping evaluate expenses.

5 E Found on the balance sheet.

An example of an investing activity is:

1 A Paying wages of employees.

2 B Paying dividends.

3 C Purchasing land.

4 D Selling inventory.

5 E Contribution from owner.

Revenue is properly recognized:

1 A When the customer's order is received.

2 B Only if the transaction creates an account receivable.

3 C At the end of the accounting period.

4 D Upon completion of the sale or when services have been performed and the business obtains the right to collect the sale price.

5 E When cash from a sale is received.

An example of a financing activity is:

1 A Buying office supplies.

2 B Obtaining a long-term loan.

3 C Buying office equipment.

4 D Selling inventory.

5 E Buying land.

Which of the following accounting principles would prescribe

that all goods and services purchased are recorded at cost?

Decreases in retained earnings that represent costs of assets or

services that are used to earn revenues are called:

A company has twice as much owner's equity as it does

liabilities If total liabilities are $50,000, what amount of assets are owned by the company?

1 A $50,000

2 B $100,000

3 C $150,000

4 D $200,000

5 E Assets cannot be determined from the given information.

Viscount Company collected $42,000 cash on its accounts

receivable How does this transaction affect the

company's accounting equation?

1 A Assets decrease and equity increases

2 B Both assets and liabilities decrease

3 C Assets, liabilities, and equity are unchanged

4 D Both assets and equity are unchanged and liabilities increase

5 E Assets increase and equity decreases

The difference between a company's assets and its liabilities is:

1 A Occurs when revenues exceed expenses.

2 B Is the same as revenue.

3 C Equals resources owned or controlled by a company.

4 D Occurs when expenses exceed assets.

5 E Represents assets taken from a company for an owner's personal use.

An exchange of value between two entities is called:

1 A The accounting equation.

2 B Represents the amount of assets owners put into a business.

3 C Equals assets minus liabilities.

4 D Is the excess of revenues over expenses.

5 E Represents the owners' claims against assets.

If liabilities are $51,500 and assets are $173,425, then equity

2 B Purchasing office equipment.

3 C Borrowing money from a bank.

4 D Selling stock.

5 E Paying off a loan.

Which of the following statements is true?

1 A Assets and revenues are the same thing.

2 B If employees have not yet been paid for their work, the company has wages

payable.

3 C Retained earnings equal cash that the company has earned and kept

4 D Revenue is another term for profit.

5 E Revenue minus expense equals retained earnings.

If the assets of a business increased $15,000 during a period of

time and its equity decreased $4,000 during the same period, liabilities in the business must have:

How would the accounting equation of Boston Company be

affected by the billing of a client for $10,000 of consulting work completed?

1 A +$10,000 accounts receivable, -$10,000 accounts payable.

2 B +$10,000 accounts receivable, +$10,000 accounts payable.

3 C +$10,000 accounts receivable, +$10,000 cash.

4 D +$10,000 accounts receivable, +$10,000 consulting revenue.

5 E +$10,000 accounts receivable, -$10,000 consulting revenue.

A corporation purchased a $40,000 delivery truck by paying

4,000 cash and signing a $36,000 note payable

Immediately prior to this transaction the corporation had assets, liabilities, and owners' equity in the amounts of

$75,000, $52,000, and $23,000 respectively What is the total amount of the corporation's assets after this

transaction has been recorded?

Which of the following statements is not true about assets?

1 A They are economic resources owned or controlled by the business.

2 B They are expected to provide future benefits to the business.

3 C They appear on the balance sheet.

4 D They appear on the statement of retained earnings.

5 E Claims on them are shared between creditors and owners.

Beta Corporation purchased $100,000 worth of land by paying

10,000 cash and signing a $90,000 mortgage Immediately prior to this transaction the corporation had assets,

liabilities, and owners' equity in the amounts of $150,000,

$30,000, and $120,000 respectively What is the total

amount of Beta Corporation's assets after this transaction has been recorded?

Our company has three times as many assets as it does

liabilities If total liabilities are $55,000, what is the amount

5 E Owners’ equity cannot be determined from the given information.

The distribution of assets to stockholders is called a(n):

If the liabilities of a business increased $75,000 during a period

of time and the equity in the business decreased $30,000 during the same period, the assets of the business must have:

1 A Decreased $105,000

2 B Decreased $45,000

3 C Increased $30,000

4 D Increased $45,000

5 E Increased $105,000

If the assets of a business increased $89,000 during a period of

time and its liabilities increased $67,000 during the same period, equity in the business must have:

The assets of a company total $700,000; the liabilities, $200,000

What are the total claims of the owners?

1 A $900,000

2 B $700,000

3 C $500,000

4 D $200,000

5 E It is impossible to determine unless the amount of owners' investment is known.

Assets created by selling goods and services on credit are:

4 D Revenue

5 E Net loss

Net income is:

1 A Assets minus liabilities.

2 B The excess of revenues over expenses.

3 C An asset.

4 D The same as revenue.

5 E The excess of expenses over retained earnings.

4 D Are also called asset management.

5 E Are also called strategic management.

Resources owned or controlled by a company that are expected

to yield benefits are:

1 A The same as net income.

2 B The excess of expenses over assets.

3 C Resources owned or controlled by a company.

4 D Increases in retained earnings from a company's earning activities.

5 E The costs of assets or services used.

122 Free Test Bank for Financial Accounting

Fundamentals 4th Edition by Wild Mutiple Choice Questions - Page 3

A company has twice as much owner's equity as it does

liabilities If total liabilities are $50,000, what amount of assets are owned by the company?

1 A $50,000

2 B $100,000

3 C $150,000

4 D $200,000

5 E Assets cannot be determined from the given information.

Net income is:

1 A Assets minus liabilities.

2 B The excess of revenues over expenses.

3 C An asset.

4 D The same as revenue.

5 E The excess of expenses over retained earnings.

The description of the relation between a company's assets,

liabilities, and equity, which is expressed as Assets =

Liabilities + Equity, is known as the:

1 A Income statement equation.

2 B Accounting equation.

3 C Business equation.

4 D Return on equity ratio.

5 E Net income.

The assets of a company total $700,000; the liabilities, $200,000

What are the total claims of the owners?

1 A $900,000

2 B $700,000

3 C $500,000

4 D $200,000

5 E It is impossible to determine unless the amount of owners' investment is known.

Reebok had income of $150 million and average assets of

$1,800 million Its return on assets is:

If the assets of a business increased $89,000 during a period of

time and its liabilities increased $67,000 during the same period, equity in the business must have:

Beta Corporation purchased $100,000 worth of land by paying

10,000 cash and signing a $90,000 mortgage Immediately prior to this transaction the corporation had assets,

liabilities, and owners' equity in the amounts of $150,000,

$30,000, and $120,000 respectively What is the total

amount of Beta Corporation's assets after this transaction has been recorded?

Resources owned or controlled by a company that are expected

to yield benefits are:

Return on assets is:

1 A Also called rate of return.

2 B Computed by dividing net income by average total assets.

3 C Computed by multiplying net income by average total assets.

4 D Used in helping evaluate expenses.

5 E Found on the balance sheet.

If liabilities are $51,500 and assets are $173,425, then equity

4 D Are also called asset management.

5 E Are also called strategic management.

Our company has three times as many assets as it does

liabilities If total liabilities are $55,000, what is the amount

5 E Owners’ equity cannot be determined from the given information.

How would the accounting equation of Boston Company be

affected by the billing of a client for $10,000 of consulting work completed?

1 A +$10,000 accounts receivable, -$10,000 accounts payable.

2 B +$10,000 accounts receivable, +$10,000 accounts payable.

3 C +$10,000 accounts receivable, +$10,000 cash.

4 D +$10,000 accounts receivable, +$10,000 consulting revenue.

5 E +$10,000 accounts receivable, -$10,000 consulting revenue.

Which of the following accounting principles would prescribe

that all goods and services purchased are recorded at cost?