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106 Test Bank for Financial Accounting 3rd Edition by Kemp

Multiple Choice Questions

Which of the following types of organization would primarily sell goods?

1 A) Merchandising business

2 B) Service business

3 C) Manufacturing business

4 D) Both Merchandising and Manufacturing businesses sell goods

Which type of organization is NOT considered a not-for-profit?

1 A) Charities

2 B) Churches

3 C) Chinese restaurant

4 D) All of the above are not-for-profits

Liabilities are defined as:

1 A) earnings retained in the business

2 B) amounts owed to lenders

3 C) stockholders' claims to assets

4 D) future economic benefits of a company

Owner's Equity represents:

1 A) an initial investment of cash by the owners

2 B) a fair distribution of wealth in the firm

3 C) retention of profits by a firm

4 D) all of the above

5 E) A and C only

A hybrid business entity with characteristics of both a corporation and a partnership is called:

1 A) S-Corporation

2 B) P-Corporation.

3 C) LLC

4 D) CP

Net income is defined as:

1 A) revenue plus expenses

2 B) revenue less assets

3 C) expenses less revenue

4 D) revenue less expenses

Which of the following is NOT part of the accounting process as it relates to information?

4 D) Limited liability companies

Caesar's Coffee sells bagged coffee to grocery stores for resale— what type of business is this?

1 A) Service business

2 B) Wholesale business

3 C) Retail business

4 D) None of the above

Go Fresh delivery recorded their delivery van at its current

replacement value, rather than the price paid for the van What principle did they violate?

1 A) Cost

2 B) Objectivity

Assets are defined as:

1 A) earnings retained in the business

2 B) amounts owed to others

3 C) stockholders' claims to assets

4 D) economic resources of a company

Which would NOT be an example of a for-profit business?

1 A) Reliability

2 B) Cost

3 C) Business entity

4 D) None of the above

Which of the following is NOT an asset?

1 A) Net income

2 B) Inventory

3 C) Buildings

4 D) Cash

Which of the following impacts the value of an item to its owner?

1 A) When the owner expects to receive something in exchange for the item

2 B) How certain the owner is about what and when they will receive

something in exchange for the item

3 C) What the owner expects to receive in exchange for the item

4 D) All of the above

Which of the following types of organizations would produce goods?

4 D) All of the above are stakeholders

Which of the following is an advantage of a sole proprietorship?

1 A) Ease of formation

2 B) Limited liability of owner

3 C) Ease of raising capital

Which of the following does NOT describe Stockholders' Equity?

1 A) Profits retained in the business

2 B) Money lent to a business

3 C) The owners' claim on the assets of a company

4 D) Money invested in a business by its owners

According to the textbook, in order for an organization to be called

1 A) All businesses are the same with regard to owner liability

2 B) Limited liability company

4 D) limited liability company

Alicia owns a sporting goods store In her accounting records, she included her personal computer and all of her personal sporting gear Alicia is violating what principle of accounting?

1 A) Going concern

2 B) Cost

3 C) Reliability

4 D) Business entity

What do we call amounts of money borrowed from lenders?

Which of the following has double taxation of earnings?

1 A) Limited liability company

Revenues, expenses and dividends are all a part of:

1 A) Assets

2 B) Retained Earnings

3 C) Liabilities

4 D) Common Stock

A company has $82,000 in Liabilities and $112,000 in

Stockholders' Equity What is the value of the company's Assets?

1 A) $30,000

2 B) $112,000

3 C) $194,000

4 D) Not enough information provided

What is an example of objective evidence?

1 A) Bank statements

2 B) Cancelled checks

3 C) Purchase receipts

4 D) All of the above

5 E) None of the above

The accounting principle that best defines a business is:

1 A) items owned by the company

2 B) economic resources of the company

3 C) earnings kept in the business

4 D) amounts owed to third parties

James opens his business by investing $12,000 How does this affect the accounting equation?

1 A) Increase in Assets; increase in Stockholders' Equity.

2 B) Increase in Liabilities; increase in Stockholders' Equity

3 C) Decrease in Assets; increase in Stockholders' Equity

4 D) Increase in Assets; decrease in Stockholders' Equity

Which of the following events would be recorded in the financial accounting records of Acme Lawn Service, Inc.?

1 A) Acme mows 125 lawns

2 B) Acme buys 5 new lawn mowers from Lawn Equipment, Inc

3 C) Lawn Equipment, Inc sells 2 mowers to Acme's competitor, Best Lawns,Inc

4 D) Events A and B should both be recorded in the financial accounting records of Acme

An increase in revenues would have which of the following effects

on the accounting equation?

1 A) Decrease Stockholders' Equity

2 B) Increase Common Stock

3 C) Increase Liabilities

4 D) Increase Stockholders' Equity

A company has $63,000 in Assets and $14,000 of Stockholders' Equity How much does the company have in Liabilities?

1 A) $14,000

2 B) $49,000

3 C) $77,000

4 D) Cannot be determined from the given information

A company has $123,000 in Assets and $65,000 in Liabilities How much does the company have in Stockholders' Equity?

1 A) $188,000

2 B) $123,000

3 C) $65,000

4 D) $58,000

In the financial accounting records, most assets should be

reported at:

1 A) current replacement cost

2 B) current market value

Consider Accounts Receivable and Accounts Payable Which of the following statements is TRUE?

1 A) Accounts Receivable is a liability and Accounts Payable is an asset

2 B) Accounts Receivable is an asset and Accounts Payable is an asset

3 C) Accounts Receivable is an asset and Accounts Payable is a liability

4 D) Accounts Receivable is a liability and Accounts Payable is a liability

A business pays off a note payable What effect does this have on the accounting equation?

1 A) Assets go up, Liabilities go down, and Stockholders' Equity remains the same

2 B) Assets go down, Liabilities remain the same, and Stockholders' Equity goes up

3 C) Assets go down, Liabilities go down, and Stockholders' Equity remains the same

4 D) Assets go up, Liabilities remain the same, and Stockholders' Equity goesup

Accountants who ignore the effect of inflation on prices may be violating which accounting principle?

1 A) Going concern

2 B) Business entity

3 C) Reliability

4 D) Something other than what is listed

FASB is made up of how many members?

1 A) 3

2 B) 5

3 C) 7

4 D) 9

IFRS stands for:

1 A) Internal Financial Report Standards

2 B) International Financial Reports Study

3 C) Internal Financial Reports Study

4 D) International Financial Reporting Standards.

Sylvia borrowed money for her business from a local bank What accounts will be affected?

1 A) Cash and Accounts Payable

2 B) Cash and Notes Payable

3 C) Accounts Payable and Revenue

4 D) Accounts Receivable and Revenue

The method of accounting that recognizes a transaction when cash is received or paid is:

Most businesses use:

1 A) Stockholders' Equity and Assets go up

2 B) There is no change in Total Assets

3 C) Assets go up and Liabilities go down

4 D) Stockholders' Equity and Liabilities go up

Which accounting concept or principle specifically states that we should record transactions that can be verified?

A company has Liabilities of $23,500 and Stockholders' Equity of

$56,500 How much does the company have in Assets?

1 A) Going concern

2 B) Objectivity

3 C) Business entity

4 D) Cost

106 Free Test Bank for Financial Accounting 3rd

Edition by Kemp Multiple Choice Questions - Page 3

Which of the following is a TRUE statement?

1 A) Purchasing office equipment for cash is a shift of Assets

2 B) Buying something on account decreases total Liabilities

3 C) Retained Earnings do not include payments of dividends

4 D) Paying off an account increases the total of Assets

Payables are classified as:

1 A) Stockholders' Equity

2 B) Retained Earnings

Net income or loss is originally shown on the:

1 A) Statement of Cash Flows

1 A) 4, 3, 2, 1

2 B) 1, 2, 3, 4

3 C) 2, 3, 4, 1

4 D) 2, 4, 3, 1

Which of the following is TRUE regarding revenue and profit?

1 A) The terms revenue and profit mean the same thing

2 B) Both revenue and profit are found on the Income Statement

3 C) Profit equals liabilities plus Stockholders' Equity

4 D) Revenue is found on the Balance Sheet and profit is found on the Income Statement

Items such as revenue, expenses and dividends are classified as:

1 A) Common Stock

2 B) Retained Earnings

3 C) Liabilities

4 D) Assets.

How would the purchase of a computer on account affect the accounting equation?

1 A) Assets increase; Liabilities decrease

2 B) Assets increase; Stockholder Equity increases

3 C) Assets increase; Liabilities increase

4 D) Assets decrease; Liabilities increase

Which of the financial statements includes a listing of assets owned by the company?

1 A) Statement of Cash Flows

2 B) Income Statement

3 C) Balance Sheet

4 D) Statement of Retained Earnings

Which of the following would be reported in the Investing

Activities section of the Statement of Cash Flows?

1 A) Sale of common stock

2 B) Purchase of equipment

3 C) Payment of dividends

4 D) Both A and C would be in this section

Of the financial statements, which is dated as of a specific date?

1 A) Statement of Cash Flows

2 B) Income Statement

3 C) Balance Sheet

4 D) Statement of Retained Earnings

Dillon invested $5,000 into his business He would:

1 A) increase Cash and increase Stockholders' Equity

2 B) decrease Cash and increase Stockholders' Equity

3 C) increase Liabilities and increase Stockholders' Equity

4 D) increase Cash only

Renuud, Inc provided $34,000 worth of services for cash Which

of the following best describes the effect on the expanded

accounting equation?

1 A) Total Assets and total Liabilities will increase

2 B) Total Assets and total Revenue will increase

3 C) Total Liabilities will increase and total Revenue will decrease

4 D) Total Assets will decrease and total Liabilities will increase

Beginning Retained Earnings are $31,000; sales are $46,800; expenses are $43,500; and dividends paid are $2,800 How much

is the amount in ending Retained Earnings?

1 A) increase by the same amount

2 B) decrease by the same amount

3 C) remain the same

4 D) increase by a different amount

Crispy's is famous for their cupcakes Crispy'sTotal Assets were

$345,000, and Total Liabilities were $129,500 How much was Crispy's Stockholders' Equity?

1 A) $474,500

2 B) $345,000

3 C) $215,500

4 D) Some other number

Payables are categorized as:

1 A) Liabilities

2 B) Assets

Payment of expenses would have which of the following effects

on the accounting equation?

1 A) Increase Liabilities

2 B) Decrease Stockholders' Equity

3 C) Increase Assets

4 D) Increase Stockholders' Equity

The Balance Sheet is used to report:

1 A) results of operations for a specific date

2 B) the financial position on a specific date

3 C) results of operations for a specific period

4 D) the financial position for a specific period

The Income Statement is used to report:

1 A) results of operations for a specific date

2 B) the financial position on a specific date

3 C) results of operations for a specific period

4 D) the financial position for a specific period

A Statement of Cash Flows is usually prepared:

1 A) first

2 B) second

3 C) third

4 D) last

Beginning Retained Earnings are $31,000; sales are $46,800; expenses are $43,500 and dividends paid are $2,800 How much

is the net income or loss for the company?

1 A) $3,300

2 B) $500

3 C) $34,300

4 D) ($3,300)

The first financial statement that is prepared is the:

1 A) Statement of Cash Flows

1 A) Increase cash and increase Equipment

2 B) Decrease cash and increase Equipment

3 C) Increase Equipment and increase Stockholders' Equity

4 D) Decrease cash and decrease Stockholders' Equity

Beginning Retained Earnings for the period would be shown on the:

1 A) Statement of Retained Earnings

2 B) Income Statement

3 C) Balance Sheets

4 D) Statement of Cash Flows

J & J Metalworks buys a new machine for its shop on credit The effect on the accounting equation is to:

1 A) increase Liabilities and increase Assets

2 B) decrease Liabilities and increase Assets

3 C) increase Assets and increase Stockholders' Equity

4 D) increase Liabilities and decrease Stockholders' Equity

The payment of cash dividends would have which of the following effects on the accounting equation?

1 A) Increase Liabilities

2 B) Decrease Stockholders' Equity

3 C) Increase Assets

4 D) Increase Stockholders' Equity

Which of the following financial statements illustrates the

accounting equation?

1 A) Statement of Retained Earnings

2 B) Income Statement

3 C) Balance Sheet

4 D) Statement of Cash Flows

A net loss will:

1 A) decrease Retained Earnings

2 B) increase Retained Earnings

3 C) force the company into bankruptcy

4 D) force the company to pay dividends

Tumbler, Inc purchased office supplies on account for $40,000 How would this transaction affect Tumbler's accounting

equation?

1 A) Increase Assets and Stockholders' Equity by $40,000

2 B) Increase Liabilities and Stockholders' Equity by $40,000

3 C) Increase Assets by $40,000 and decrease Liabilities by $40,000

4 D) Increase Assets by $40,000 and increase Liabilities by $40,000

Beginning Retained Earnings are $65,000; sales are $29,500; expenses are $33,000; and dividends paid are $3,500 How much

is the amount in ending Retained Earnings?

1 A) $58,000

2 B) $61,500

3 C) $68,500

4 D) $65,000

A company purchases supplies for cash What is the net result on the accounting equation?

1 A) Total Assets will go up and total Liabilities will go down

2 B) Total Assets will go up and Stockholders' Equity will go up

3 C) Total Assets will not change

4 D) Total Liabilities will go up

The net income figure is needed to prepare:

1 A) a Balance Sheet

2 B) a Statement of Retained Earnings

3 C) a Statement of Liabilities

4 D) some other report

In the expanded accounting equation, revenues minus expenses are part of:

4 D) Statement of Cash Flows

Which of the following is a FALSE statement?

1 A) Revenues provide inward flows of assets.

2 B) Revenue is categorized as an asset

3 C) Revenue is categorized as part of Retained Earnings

4 D) Revenues are generated from the sale of goods and services