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109 Test Bank for Financial Accounting 8th Edition

Multiple Choice Questions-Page 1

Accountants follow guidelines for professional measurement and disclosure of financial information called:

4. D All of the above

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 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

3. C reliability principle

4. D stable dollar principle.

What type of accounting provides information for decision makers outside the entity?

4. D limited liability company

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

The accounting assumption that states that the business, rather than its owners, is the reporting unit is the:

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

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

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

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

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

The amount that stockholders have invested in a corporation is called:

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

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 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

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

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

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 relevant measure of the value of the assets of a company that

is going out of business is the:

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

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

All of the following are characteristics of useful accounting

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

Owners of an LLC are called:

1. A partners

2. B sole proprietors

3. C members

4. D stockholders

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

Which of the following is NOT an asset?

1. A Inventory

2. B Accounts payable

3. C Accounts receivable

4. D Cash

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

The economic resources of a business that are expected to

produce a benefit in the future are:

1. A is working towards a convergence of standards with the IASB

2. 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

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 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

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

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

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

For accounting purposes, the business entity should be considered separate from its owners if the business is organized as a:

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

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

109 Free Test Bank for Financial Accounting 8th Edition

by Harrison Multiple Choice Questions-Page 2

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

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

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

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 financial statements shows the net increase

or decrease in cash during the period?

1. A Balance Sheet only

2. B Statement of Operations

3. C Statement of Retained Earnings and Balance Sheet

4. D Statement of Cash Flows

3. C increases in retained earnings resulting from delivering goods or services

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

Net income is computed as:

1. A revenues – expenses – dividends

2. B revenues + expenses

3. C revenues – expenses

4. D revenues – expenses + dividends

The portion of net income that the company has kept over a period

A corporation’s paid-in capital includes:

1. A revenues and expenses

2. B assets and liabilities

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

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

3. C $280,000

4. D $300,000

Stockholders’ equity for Commerce Corporation on January 1, 2010 and December 31, 2010 were $60,000 and $75,000, respectively Assets on January 1, 2010 and December 31, 2010 were $115,000 and $105,000, respectively Liabilities on January 1, 2010 were

$55,000 What is the amount of liabilities on December 31, 2010?

1. A $40,000

2. B $15,000

3. C $30,000

4. D The amount is indeterminable from the given information

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

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

An example of a selling, general, and administrative expense is:

1. A cost of goods sold

2. B sales

3. C sales commissions paid to employees

4. D interest expense

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 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

Assets appear on:

1. A the Balance Sheet

2. B the Income Statement

3. C the Statement of Retained Earnings

4. D both the Balance Sheet and the Statement of Retained Earnings

The statement that reports revenues and expenses for the period is the:

1. A Statement of Retained Earnings

1. A increase $145,000.

2. B decrease $275,000

3. C decrease $145,000

4. D increase $275,000

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

Which statement(s summarizes the revenues and expenses of an entity?

1. A Balance Sheet only

2. B Statement of Cash Flows and Income Statement

3. C Statement of Retained Earnings and Statement of Operations

3. C covers a defined period of time.

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

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 heading John Smith, Capital, indicates the owners’ equity of a:

A net loss occurs when:

1. A not enough cash exists

2. B total revenues exceed total expenses

3. C total expenses exceed total revenues

4. D total revenues and dividends exceed total expenses

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

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

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

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:

4. D total stockholders’ equity.

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 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

Dividends:

1. A are expenses

2. B always 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

109 Free Test Bank for Financial Accounting 8th Edition

by Harrison Multiple Choice Questions-Page 3

The main source of cash from its main business comes from:

1. A current assets on the balance sheet

2. B operating activities on the statement of cash flows

3. C financing activities on the statement of cash flows

4. D investing activities on the statement of cash flows

Retained earnings appears on which of the following financial

1. A In the operating activity section

2. B In the non-cash financing activity section

3. C In the investing activity section

4. D In the financing activity section