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111 Test Bank for Financial Accounting 9th Edition

by Harrison Mutiple Choice Questions - Page 1

When preparing accounting information, understand that:

1. A) the auditors are primarily responsible for preparing the information

2. B) the cost of disclosure should not exceed the expected benefits to the users

3. C) accounting information can be produced quickly and inexpensively

4. D) all information must be disclosed for a complete understanding of the underlying economic facts

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) historical cost principle

2. B) objectivity principle

3. C) reliability principle

4. D) stable dollar principle

The type of accounting that makes projections to determine if a company should build a new store is:

1. A) financial accounting

2. B) business accounting

3. C) managerial accounting

4. D) projection accounting

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

Regarding financial statement elements:

1. A) assets must provide immediate benefits to the company

2. B) stockholders' equity represents the "outsider claims" to the assets

3. C) merchandise inventory and dividends are assets of a company

4. D) revenues are inflows of resources that increase retained earnings

Another way to state the accounting equation is:

1. A) Assets = Liabilities + Paid-in Capital - Common Stock

2. B) Assets = Liabilities + Retained Earnings

3. C) Assets = Liabilities + Paid-in Capital + Retained Earnings

4. D) Assets = Liabilities - Paid-in Capital - Dividends

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

Owners of an LLC are called:

1. A) partners

2. B) sole proprietors

3. C) members

4. D) stockholders

The CEO of ABC Company owns a vacation home in Hawaii ABC owns a factory in Detroit where they are headquartered Which of these properties is considered an asset(s) of the business?

1. A) Only the vacation home in Hawaii

2. B) Only the factory in Detroit

3. C) Both the vacation home in Hawaii and the factory in Detroit

4. D) Neither the vacation home in Hawaii nor the factory in Detroit

Decision makers who use accounting include:

1. A) the SEC

2. B) investors

3. C) managers

4. D) all of the above

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 important fact to remember when studying GAAP and IFRS is:

1. A) if the U.S adopts IFRS, the accounting information being taught currently will all be outdated

2. B) there is no difference in way information is arranged on the balance sheet and income statement if IFRS is adopted

3. C) newly issued U.S accounting standards have conformed U.S practices to IFRS

4. D) there is no terminology difference between GAAP and IFRS

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 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) international accounting financial standards

An entity that must pay its own income taxes is:

1. A) proprietorship

2. B) partnership

3. C) limited-liability company

4. D) corporation

The stable-monetary-unit assumption:

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 apartfrom other organizations and individuals

4. D) enables accountants to ignore the effect of inflation in the accounting records

Examples of liabilities include:

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

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) the outflow of resources that decrease common stock

When dealing with the elements of the financial statements, it is important to consider that:

1. A) the current portion of long-term debt is the amount due within the next yearand must be disclosed separately

2. B) fixed assets are short-term assets the company plans on selling in the nearfuture

3. C) cost of goods sold is a component of paid-in capital

4. D) retained earnings is a long-term liability account

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

means that the accounting information for a company must be prepared in such a way as to be capable of being

compared with information from other companies in the same

period and consistent with similar information for that company in previous periods

1. A) comparability and relevance

2. B) relevance and faithful representation

3. C) materiality and understandability

4. D) faithful representation and timeliness

Shareholders of a corporation:

1. A) receive one vote for each share of stock they own

2. B) have unlimited liability

3. C) have mutual agency

4. D) receive dividends from the corporation without having to pay tax on the distribution

A construction company paid $80,000 cash for equipment used in the business At the time of purchase, the equipment had a list price

of $90,000 When the balance sheet was prepared, the value of the equipment was $83,000 At what amount should the equipment be recorded in the records of the company?

1. A) $80,000

2. B) $83,000

3. C) $85,000

4. D) $90,000

If a company prepares its financial statements three years after the end of their accounting period, they have violated the qualitative characteristic of :

2. B) IFRS is more "rules-based" than GAAP

3. C) The FASB and the IASB are working towards convergence of standards

4. D) The SEC will require all companies to use IFRS beginning in 2013

Which of the following is a true statement about the characteristics

of partnerships?

1. A) In a limited-liability partnership, a wayward partner can create a large liability for the other partners

2. B) General partners have mutual agency and limited liability

3. C) Income and loss of the partnership "flows through" to the partners

4. D) The partnership agreement must be in writing

In 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

Which type of business organization transacts the most business and is the largest in terms of assets, income, and number of employees?

1. A) Proprietorship

2. B) Partnership

3. C) Limited-liability company

4. D) Corporation

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 assets of a company:

1. A) must equal the liabilities of the company

2. B) include property, plant, and equipment and common stock

3. C) represent economic resources that are expected to produce a future benefit

4. D) include merchandise inventory and accounts payable

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.

Historical cost:

1. A) is determined for each asset on a yearly basis

2. B) is equal to the amount of cash paid less the dollar value of all non-cash consideration given in the exchange

3. C) is a verifiable measure that is relatively free from bias

4. D) is the amount that the business could sell the asset for

The is elected by the stockholders and is responsible for setting policy and appointing officers

1. A) board of directors

2. B) chief executive officer (CEO)

3. C) chief financial officer (CFO)

4. D) advisory council

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 fair market value

3. C) historical cost

4. D) recorded value

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

All of the following are true statements about the entity assumption EXCEPT for:

1. A) the entity assumption draws a sharp boundary around each entity

2. B) the transactions of the business cannot be mingled with the transactions of the owner

3. C) the entity assumption ensures that the business will continue indefinitely

4. D) under the entity assumption, the entity is any organization that stands apart

as a separate economic unit

An important fact to consider when determining how to organize a business is that:

1. A) members of an LLC have unlimited liability and are taxed like members of

a partnership

2. B) for accounting purposes, a proprietorship is a distinct entity

3. C) the records of a partnership can include the partner's personal finances

4. D) the proprietor and the proprietorship are separate legal entities

Verifiability means that the information:

1. A) is timely

2. B) is understandable

3. C) must be capable of being checked for accuracy

4. D) is material and relevant

111 Free Test Bank for Financial Accounting 9th Edition

by Harrison Mutiple Choice Questions - Page 2

Refer to Exhibit 1.3 Net income for ABC Company for the year was:

1. A) $83,000

2. B) $91,000

3. C) $115,000.

4. D) $176,000

Which of the following would appear on the balance sheet?

1. A) Assets and operating cash flows

2. B) Dividends and liabilities

3. C) Assets and liabilities

4. D) Owners' equity and revenues

At the end of the current accounting period, account balances were

as follows: Cash, $15,000; Accounts Receivable, $20,000;

Common Stock, $8,000; Retained Earnings, $14,000 Liabilities for the period were:

When a company is determining their year end:

1. A) it must be December 31 if they are a retail store

2. B) a calendar year can end at the end of any month

3. C) they may want to adopt a fiscal year that ends at the low point of their operations

4. D) a fiscal year end ends on December 31.

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 statement(s) summarizes the revenues, gains, expenses, and losses of an entity?

1. A) Balance sheet

2. B) Statement of cash flows and income statement

3. C) Statement of retained earnings and statement of operations

4. D) Income statement

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

On the income statement:

1. A) the top line is net income

2. B) all expenses must have the word "expenses" in their title

3. C) gains and liabilities are reported

4. D) amounts can be reported in millions of dollars to reduce clutter

On January 1, 2010, total assets for Liftoff Technologies were

$125,000; on December 31, 2010, total assets were $145,000 On January 1, 2010, total liabilities were $110,000; on December 31,

2010, total liabilities were $115,000 What is the amount of the change and the direction of the change in Liftoff Technologies' stockholders' equity for 2010?

1. A) Decrease of $15,000

2. B) Increase of $15,000

3. C) Increase of $30,000

4. D) Decrease of $30,000

Net income is computed as:

1. A) revenues - expenses - dividends

2. B) revenues + expenses

3. C) revenues - expenses

4. D) revenues - expenses + dividends

Refer to Exhibit 1.3 Total assets for ABC Company at the end of the year were:

4. D) Statement of cash flows

Common stock:

1. A) is issued to shareholders as evidence of their ownership

2. B) is only issued by large, international companies

3. C) is the basic component of retained earnings

4. D) represents the amount the company owes its shareholders

Which of the following increases retained earnings?

1. A) cost of sales is another term for gross profit

2. B) cost of goods sold is the major expense of merchandising entities

3. C) companies are not allowed to offset items such as interest income and interest expense against each other

4. D) net sales is equal to sales revenue less cost of goods sold

If an investor wants to know how much cash the company

generated and spent during the year, the main financial statement they should look at is the:

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

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

Proprietorships and partnerships:

1. A) have the same equity accounts as a corporation

2. B) identify paid-in capital and common stock separately

3. C) use a single heading for their equity account called Capital

4. D) do not have equity accounts

Receivables are classified as:

1. A) increases in earnings

2. B) decreases in earnings

3. C) liabilities

4. D) assets

Cost of goods sold:

1. A) is considered a selling expense

2. B) is the direct cost of the product to the company

3. C) is classified as revenue on the income statement.

4. D) is the same as gross profit

Expenses of a business include:

1. A) sales and cash equivalents

2. B) common stock and rent

3. C) cost of goods sold and salaries

4. D) retained earnings and utilities

1. A) are paid by a business to shareholders as compensation for services

2. B) 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

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