Test bank for financial accounting information for decisions 5th edition by wild

An external audit report is a professional opinion about whether the financial statements are prepared according to generally accepted accounting principles... The four basic financial s

Chapter 01 Introducing Accounting in Business

8 An external audit report is a professional opinion about whether the financial statements are prepared according to generally accepted accounting principles

16 Auditors are banned from direct investment in their clients

24 The business entity assumption requires that a business be accounted for separately from other business entities, including its owner or owners

32 The objectivity principle prescribes that financial accounting information is supported by independent unbiased evidence

39 The Securities and Exchange Commission (SEC) is the private group that sets both broad and specific accounting standards

47 Owner financing refers to resources contributed by creditors or lenders

56 Net income is the excess of expenses over revenues, whereas net loss is the excess of revenues over expenses

64 An external transaction is an exchange of value within an organization

72 Reebok's net income of $119 million and average assets of $1,400 million results in a return on assets of 8.5%

78 The four basic financial statements include the balance sheet, income statement, statement

of retained earnings and statement of cash flows

True False

80 A balance sheet covers a period of time such as a month or year

88 Operating activities include long-term borrowing and repaying cash from lenders and cash investments by owners or dividends to the owner

92 Chuck Taylor invested $175,000 in cash in Fast-Forward This amount would be reported

in the statement of cash flows under financing activities

Multiple Choice Questions

94 Accounting is an information and measurement system that:

A Identifies business activities

B Records business activities

C Communicates business activities

D Helps people make better decisions

E All of the above

95 Technological advancement

A Has replaced accounting

B Has not changed the work that accountants do

C Has freed accounting professionals to concentrate more on the analysis and interpretation

of information

D In accounting has replaced the need for decision makers

E In accounting is only available to large corporations

96 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?

A Acme washes 500 cars

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

C Clean Company, a supplier, sells 50 pounds of soap to Acme

98 The primary objective of financial accounting is:

A To serve the decision-making needs of internal users

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

C To monitor and control company activities

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

E To know what, when and how much to produce

101 The operating functions of a business include:

A Research and development

102 Which of the following statements is true of external information users?

A They are directly involved in managing the organization

B Their needs are met by the managerial area of accounting

C They have limited access to an organization's accounting information

D They use accounting information to help improve the efficiency and effectiveness of an organization

E They are the only users of accounting information who rely on internal controls to monitor company activities

105 Accounting certifications include the:

A Certified Public Accountant

B Certified Management Accountant

C Certified Internal Auditor

D Chartered Financial Analyst

E All of the above

106 A Certified Public Accountant:

A Must meet education and experience requirements

B Must pass an examination

C Must exhibit ethical character

D Can also be a Certified Management Accountant

E All of the above

107 Several career options are listed below Which list contains a job NOT representative of the careers available to students who have earned an accounting degree?

A FBI investigations, market research and auditing

B Auditing, tax preparation and bookkeeping

C Systems design, auditing and estate planning

D Budgeting, litigation support and auditing

E Internal auditing, budgeting and tax preparation

108 Ethical behavior requires:

A That an auditors' pay not depend on the figures in the client's reports

B Auditors to invest in businesses they audit

C Analysts to report information favorable to their companies

D Managers to use accounting information to benefit themselves

E All of the above

109 Social responsibility:

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

B Is a code that helps in dealing with confidential information

C Is required by the SEC

D Requires that all businesses conduct social audits

E All of the above

111 The accounting guideline prescribing that financial statement information be supported

by independent, unbiased evidence other than someone's belief or opinion is the:

A Business entity principle

B Monetary unit principle

A Is a legal entity separate and distinct from its owners

B Is controlled by the FASB

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

D Is the same as a limited liability partnership

E All of the above

114 The rules adopted by the accounting profession as guides in preparing financial statements are:

A Comprised of both general and specific principles

B Known as generally accepted accounting principles

C Abbreviated as GAAP

D Intended to make information in financial statements relevant, reliable and comparable

E All of the above

115 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:

A They are identical

B They are entirely different conceptual frameworks

C They are similar but not identical

D Neither has anything to do with accounting

E They both relate only to publicly traded companies

118 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:

A Going-concern principle

B Business entity principle

119 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:

122 Generally accepted accounting principles:

A Are based on long used accounting practices

B Are basic assumptions, concepts and guidelines for preparing financial statements

C Are detailed rules used in reporting on business transactions and events

D Arise from the rulings of authoritative bodies

E All of the above

123 The objectivity principle:

A Means that information is supported by independent, unbiased evidence

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

C Means that financial statement should contain information that is optimistic

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

E All of the above

124 The principle that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash and (3) measures the amount of revenue as the cash plus the cash equivalent value of any non-cash assets received from customers in exchange for goods or services is called the:

125 The question of when revenue should be recognized on the income statement (according

to GAAP) is addressed by the:

A Revenue recognition principle

126 The International Accounting Standards Board (IASB)

A Hopes to create harmony among accounting practices of different countries

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

C Has the authority to impose its standards on companies

127 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 6 years ago Which accounting principle would prescribe that Maximum Experience record the building on its records at $500,000?

A Monetary unit principle

B Going-concern principle

C Cost principle

D Business entity principle

E Revenue recognition principle

128 On December 15, 2008, Myers Legal Services signed a $50,000 contract with a client to provide legal services to the client in 2009 Which accounting principle would require Myers Legal Services to record the legal fees revenue in 2009 and not 2008?

A Monetary unit principle

B Going-concern principle

C Cost principle

D Business entity principle

E Revenue recognition principle

129 Marian Mosely is the owner of Mosely Accounting Services Which accounting principle requires Marian to keep her personal financial information separate from the financial

information of Mosely Accounting Services?

A Monetary unit principle

B Going-concern principle

C Cost principle

D Business entity principle

E None of these Since Marian is a sole proprietor, she is not required to separate her personal financial information from the financial information of Mosely Accounting Services

130 Congress passed the Sarbanes-Oxley Act to

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

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

C Help curbs financial abuses at companies that issue their stock to the public

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

E Require that all companies publicly disclose their internal control plans

131 A limited partnership:

A Includes a general partner with unlimited liability

B Is subject to double taxation

C Has owners called stockholders

D Is the same as a corporation

E Must only have two partners

132 A partnership:

A Is also called a sole proprietorship

B Has unlimited liability

C Has to have a written agreement in order to be legal

D Is a legal organization separate from its owners

E Has owners called shareholders

133 According to generally accepted accounting principles, a company's balance sheet should show the company's assets at:

A The cash equivalent value of what was given up

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

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

D The best estimate from a certified internal auditor

E The objective value to external users

135 Which of the following accounting principles would prescribe that all goods and services purchased is recorded at cost?

136 Revenue is properly recognized:

A When the customer's order is received

B Only if the transaction creates an account receivable

C At the end of the accounting period

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

E When cash from a sale is received

137 An example of a financing activity is:

A Buying office supplies

B Obtaining a long-term loan

C Buying office equipment

B Purchasing office equipment

C Borrowing money from a bank

D Selling stock

E Paying off a loan

139 Planning activities:

A Are the means organizations must use to pay for resources

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

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

D Are the carrying out of an organization's plans

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

D Are also called asset management

E Are also called strategic management

141 The major activities of a business include:

A Operating, Investing, Making a Profit

B Investing, Making a Profit, Operating

C Making a Profit, Operating, Borrowing

D Operating, Investing, Financing

E Investing, Making a Profit Financing

142 An example of an investing activity is:

A Paying wages of employees

B Paying dividends

C Purchasing land

143 Net Income:

A Decreases equity

B Represents the amount of assets owners put into a business

C Equals assets minus liabilities

D Is the excess of revenues over expenses

E Represents owners' claims against assets

147 Net income is:

A Assets minus liabilities

B The excess of revenues over expenses

C An asset

D The same as revenue

E The excess of expenses over retained earnings

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

151 The description of the relation between a company's assets, liabilities and equity, which

is expressed as Assets = Liabilities + Equity are known as the:

A Income statement equation

B Accounting equation

C Business equation

D Return on equity ratio

E Net income

152 Assets = Liabilities + Equity is known as the:

A Income statement equation

A Increase retained earnings

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

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

D Occur when retained earnings exceed revenue

E Are creditor's claims on assets

154 Net income:

A Occurs when revenues exceed expenses

B Is the same as revenue

C Equals resources owned or controlled by a company

D Occurs when expenses exceed assets

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

155 Revenues are:

A The same as net income

B The excess of expenses over assets

C Resources owned or controlled by a company

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

E The costs of assets or services used

156 Accounting

A Is an information and measurement system

B Identifies, records and communicates information about business activities

C Helps people make better decisions

D Involves interpreting information and designing information systems to provide useful reports that monitor and control a company's activities

E All of the above

157 If assets are $99,000 and liabilities are $32,000, then equity equals:

160 Which of the following statements is true about assets?

A They are economic resources owned or controlled by the business

B They are expected to provide future benefits to the business

C They appear on the balance sheet

D Claims on them are shared between creditors and owners

E All of the above

162 Distributions of assets by a business to its stockholders are called:

163 The balance sheet equation is:

A Revenues minus expenses equal net income

B Debits equal credits

C The bookkeeping phase of accounting

D Another name for the accounting equation

E Assets minus liabilities and equity

165 Our company has three times as many assets as it does liabilities If total liabilities are

$55,000, what is the amount of owners' equity?

166 A company has twice as much owner's equity as it does liabilities If total liabilities are

$50,000, what amounts of assets are owned by the company?

167 Which of the following statements regarding account classification is true?

A Assets and revenues are the same thing

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

C Retained earnings equal cash which the company has earned and kept

D Revenue is another term for profit

E Revenue minus expense equals retained earnings

171 Photometer Company paid off $30,000 of its accounts payable in cash What would be the effects of this transaction on the accounting equation?

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

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

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

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

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

172 How would the accounting equation of Boston Company be affected by the billing of a client for $10,000 of consulting work completed?

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

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

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

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

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

173 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:

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

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

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

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

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

174 Viscount Company collected $42,000 cash on its accounts receivable How does this transaction affect the company's accounting equation?

A Assets decrease and equity increases

B Both assets and liabilities decrease

C Assets, liabilities and equity are unchanged

D Both assets and equity are unchanged and liabilities increase

E Assets increase and equity decreases

175 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:

178 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?

A $240,000

B $250,000

179 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?

180 Return on assets is:

A Also called return on investment

B ROA

C Computed by dividing net income by average total assets

D Used in helping evaluate management

E All of the above

183 Fast-Forward has net income of $18,955 and assets at the beginning of the year of

$200,000 Its assets at the end of the year total $246,000 Compute its return on assets

185 U.S government bonds are:

A High-risk and high-return investments

B Low-risk and low-return investments

C High-risk and low-return investments

D Low-risk and high-return investments

E High risk and no-return investments

186 Risk is:

A Net income divided by average total assets

B The reward for investment

C The uncertainty about the expected return to be earned

D Unrelated to expected return

E Derived from the idea of getting something back from an investment

187 Consider the risk of the following investments List these investments in order from highest expected return to lowest expected return

A Drilling exploration to discover oil, stock in a secure "blue chip" corporation, government bonds

B Stock in a secure "blue chip" corporation, government bonds, drilling exploration to discover oil

C Government bonds, drilling exploration to discover oil, stock in a secure "blue chip" corporation

D Drilling exploration to discover oil, government bonds, stock in a secure "blue chip" corporation

E Government bonds, stock in a secure "blue chip" corporation, drilling exploration to discover oil

C Statement of Retained Earnings

D Statement of Cash Flows

E All of the above

191 The statement of retained earnings:

A Reports how retained earnings changes at a point in time

B Reports how retained earnings changes over a period of time

C Reports on cash flows for operating, financing and investing activities over a period of time

D Reports on cash flows for operating, financing and investing activities at a point in time

E Reports on amounts for assets, liabilities and equity at a point in time

192 The financial statement that reports whether the business earned a profit and also lists the types and amounts of the revenues and expenses is called a(n):

A Balance sheet

B Statement of retained earnings

C Statement of cash flows

D Income statement

E Statement of financial position

193 A balance sheet lists:

A The types and amounts of the revenues and expenses of a business

B Only the information about what happened to retained earnings during a time period

C The types and amounts of assets, liabilities and equity of a business as of a specific date

D The inflows and outflows of cash during the period

E The assets and liabilities of a company but not the equity

194 A financial statement providing information that helps users understand a company's financial status and which lists the types and amounts of assets, liabilities and equity as of a specific date is called a(n):

A Balance sheet

B Income statement

C Statement of cash flows

D Statement of retained earnings

195 The financial statement that describes where a company's cash came from and where it went during the period is the:

A Statement of financial position

B Statement of cash flows

A Statement of financial position

B Statement of cash flows

C Statement of retained earnings

D Statement of cash flows

C Statement of retained earnings

D Statement of cash flows

E Transaction statement

199 The income statement reports all of the following except:

A Revenues earned by a business

B Expenses incurred by a business

C Assets owned by a business

D Net income or loss earned by a business

E The time period over which the earnings occurred

203 A company borrows $125,000 from the Eastside Bank and receives the loan proceeds in cash This represents a(n):

206 Fast-Forward has beginning equity of $257,000, net income of $51,000, dividends of

$40,000 and investments by owners in exchange for stock of $6,000 Its ending equity is:

207 Acme Company had equity of $55,000 at the end of the current year During this year the company had a $2,000 net loss and investments by owners in exchange for stock of $7,000 Compute equity as of the beginning of this year

C Statement of retained earnings

D Statement of cash flows

C Statement of retained earnings

D Statement of cash flows