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Trang 1109 Free Test Bank for Financial Accounting 8th
Edition
by Harrison
Multiple Choice Questions
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
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 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
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
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
Advantages of a corporation include:
Trang 21. A a single owner.
2. B the double taxation of distributed profits
3. C limited liability of the stockholders
4. D mutual agency
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
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
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
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
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
Examples of liabilities include:
1. A accounts payable and accounts receivable
2. B accounts payable and land
Trang 33. C investments and owners’ equity.
4. D accounts payable and long-term debt
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 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
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
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?
1. A Corporation
2. B Partnership
3. C Proprietorship
4. D All of the above
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
The FASB:
1. A is working towards a convergence of standards with the IASB
Trang 42. 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
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
All of the following are characteristics of useful accounting
information EXCEPT:
1. A comparability
2. B timeliness
3. C informative
4. D verifiability
The owners’ interest in the assets of a corporation is known as:
1. A common stock
2. B stockholders’ equity
3. C long-term assets
4. D operating expenses
Who ultimately controls a corporation?
1. A Board of Directors
2. B The Chief Executive Officer (CEO
3. C The stockholders
4. D The President
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:
Trang 51. 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
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
The amount that stockholders have invested in a corporation is called:
1. A retained earnings
2. B investment
3. C revenue
4. D paid-in capital
Owners of an LLC are called:
1. A partners
2. B sole proprietors
4. D stockholders
The economic resources of a business that are expected to
produce a benefit in the future are:
1. A liabilities
2. B assets
3. C owners’ equity
4. D expenses
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
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
Trang 63. C reliability principle.
4. D stable dollar principle
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
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
Accountants follow guidelines for professional measurement and disclosure of financial information called:
1. A IASB
3. C FASB
4. D SEC
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
What type of accounting provides information for decision makers outside the entity?
1. A Bookkeeping
2. B Managerial accounting
3. C Internal auditing
4. D Financial accounting
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
Trang 73. C partnership.
4. D any of the above
International financial reporting standards are set by the:
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
109 Free Test Bank for Financial Accounting 8th
Edition by Harrison Multiple Choice Questions-Page 2
Cash dividends:
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
Expenses are:
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
Retained earnings is increased by:
1. A net income
2. B net loss
3. C dividends
4. D expenses
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
Trang 8Revenues 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
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
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
The portion of net income that the company has kept over a period of years is called:
1. A common stock
2. B retained earnings
3. C revenue
4. D gross profit
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
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
Net income is computed as:
Trang 91. A revenues – expenses – dividends.
2. B revenues + expenses
3. C revenues – expenses
4. D revenues – expenses + dividends
Gains and losses appear on which of the financial statements listed below?
1. A Balance Sheet
3. C Statement of Cash Flows
4. D Statement of Retained Earnings
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 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
At the end of the current accounting period, account balances were as follows: Cash, $180,000; Accounts Receivable, $75,000; Common Stock, $20,000; Retained Earnings, $65,000 Liabilities for the period were:
1. A $ 70,000
2. B $170,000
3. C $190,000
4. D $210,000
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
Which statement(s summarizes the revenues and expenses of
an entity?
Trang 101. A Balance Sheet only
2. B Statement of Cash Flows and Income Statement
3. C Statement of Retained Earnings and Statement of Operations
The heading John Smith, Capital, indicates the owners’ equity of a:
1. A proprietorship
2. B corporation
3. C not-for-profit
4. D regulatory body
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
A retail store sells t-shirts for $85 and purchases them for $60 The store’s cost of goods sold would be:
1. A $25
2. B $85
3. C $60
4. D none of the above
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 income statement:
1. A is not dated
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
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
Trang 113. C $280,000.
4. D $300,000
A corporation’s paid-in capital includes:
1. A revenues and expenses
2. B assets and liabilities
4. D net income
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
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
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
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
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
Which of the following financial statements shows the net
increase or decrease in cash during the period?
1. A Balance Sheet only