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85 Test Bank for Principles of Accounting 1st Edition Multiple Choice Questions - Page The primary responsibility for setting the rules of accounting rests with the: A Financial Accounting Standards Board (FASB) B Generally Accepted Accounting Principles (GAAP) C Security and Exchange Commission (SEC) D American Institute of CPAs (AICPA) Resources a business owns are called: A Liabilities B Owner's equity C Revenues D Assets Unearned revenue is an example of a(n): A Liability B Revenue C Asset D Expense Which of the following represents the fundamental accounting equation? A A + L = OE B A - L = OE C OE + A = L D L - OE = A The rules of accounting are known as: A Security and Exchange Commission (SEC) B Financial Accounting Standards Board (FASB) 3 C American Institute of CPAs (AICPA) D Generally Accepted Accounting Principles (GAAP) Which of the following would not be considered an external user of accounting information? A Bank B Supplier C Manager D Investor A bank is most likely a(n) _ user of accounting information A external B internal C governmental D managerial Which financial statement links together the Income Statement and the Balance Sheet? A Statement of cash flows B Statement of owner's equity C Statement of operations D Statement of financial position Claims a business owes are called owners' equity when they are held by: A Creditors B Suppliers C Employees D Investors Inventory is an example of a(n): A Liability B Revenue 3 C Expense D Asset Which of the following is not one of the four basic financial statements? A Income statement B Statement of cash flows C Accounting equation D Balance sheet Land is an example of a(n): A Liability B Asset C Revenue D Expense An example of an asset is: A Wages expense B Revenue C Supplies D Accounts payable Which of the following is considered an internal user of accounting information? A Production manager B Supplier C Investor D Customer In a business, who has the primary responsibility for following GAAP and preparing fair financial statements? A Management B The accountants C The CPA D The SEC Which financial statement includes only those activities that result in cash changing hands during the period? A Income statement B Balance sheet C Statement of cash flows D Statement of owner's equity The _ outlines how the profits (or losses) are shared A Stock certificate B Partnership agreement C Corporate charter D Financial statements The governmental agency that supervises the work of the Financial Accounting Standards Board (FASB) is known as the: A Generally Accepted Accounting Principles (GAA) B Securities and Exchange Commission (SEC) C Public Company Accounting Oversight Board (PCAOB) D American Institute of CPAs (AICPA) Which of the following is not one of the types of business activities included on the statement of cash flows? A Investing B Operating C Financing D Reporting An example of a claim to resources of a business is: A Cash B Land 3 C Accounts payable D Accounts receivable Financial information that is ensures that it is unbiased and verifiable A relevant B comparable C reliable D consistent Which of the following is considered an external user of accounting information? A Production manager B CEO C IRS D Controller Which of the four basic financial statements provides a snapshot of the business on a particular day? A Balance sheet B Income statement C Statement of cash Flows D Statement of owner's equity All of the following include activities of external users of accounting information except: A Evaluating the risk of lending money to a business B Determining the amount of supplies on hand C Deciding whether to buy, sell or hold stock in a company D Assessing whether the company has paid the correct amount of taxes Which of the following is not a characteristic of an asset? A It is a resource controlled by the business B It has measurable value 3 C It is incurred to generate revenue D It is expected to provide future benefits Which financial statement should be prepared first? A Balance sheet B Statement of cash flows C Income statement D Statement of owner's equity The Sarbanes-Oxley Act of 2002 requires that top managers maintain an audited system of: A Accounting B Reporting C Internal control D Financing 55 Free Test Bank for Principles of Accounting 1st Edition by Libby Multiple Choice Questions - Page Technology and the low cost of computers have resulted in: A Increased complexity in accounting systems B Higher fees charged by public accountants C Small businesses handling their own bookkeeping D An abundance of accounting reports On December 31 of the current year, a company reported the following items on its balance sheet: Cash $10,500; Accounts receivable $5,200; Inventory $2,300; Equipment $102,400; Accounts payable $12,000; Notes payable $56,000 What amount should be reported as owner's equity? A $108,400 B $52,400 C $120,400 D $188,400 Which of the following is an example of a service company? A Wal-Mart B Home Depot C American Airlines D Ford Motor Company A company pays $3,400 for the current month utilities What is the effect on the accounting equation? A Assets increase $3,400; no effect on liabilities; equity increases $3,400 B Assets decrease $3,400; liabilities decrease $3,400; no effect on equity C Assets decrease $3,400; no effect on liabilities; equity decreases $3,400 D Assets increase $3,400; liabilities increase $3,400; no effect on equity A company reported assets of $12,000 and liabilities of $2,500, what amount would be reported for owner's equity? A $14.500 B $9,500 C $12,000 D $2,000 If a company purchases supplies on account for $5,000, what is the effect on the accounting equation? A Assets increase $5,000; no effect on liabilities; equity increases $5,000 B Assets decrease $5,000; liabilities decrease $5,000; no effect on equity C Assets decrease $5,000; no effect on liabilities; equity increases $5,000 D Assets increase $5,000; liabilities increase $5,000; no effect on equity Accounting is an information system designed to: A Provide information to external users only B Provide information to internal users only C Capture a business's activities and communicate results to all decision makers D Handle the record keeping of a business but other functions must be performed by a CPA What business type has two or more owners and unlimited liability? A Corporation B Sole proprietorship C Partnership D Retailer _ are the standards of conduct for judging right from wrong A Ethics B Rules C Internal controls D Conducts The area of accounting which primarily serves the decision making needs of internal users is: A Financial accounting B Bookkeeping C Auditing D Managerial Accounting Accountants who are employed by a single business or nonprofit organization work in: A Public accounting B Private accounting C A CPA firm D Governmental accounting only A company purchases equipment for $45,000 cash What is the effect on the accounting equation? A Assets increase $45,000; no effect on liabilities; equity increases $45,000 B Assets decrease $45,000; liabilities decrease $45,000; no effect on equity C No effect on the accounting equation because assets increase and decrease by the same amount 4 D Assets increase $45,000; liabilities increase $45,000; no effect on equity A company reported revenue of $100,000 and a net loss of $12,000 What amount was reported as expenses? A $112,000 B $12,000 C $88,000 D $100,000 When a company distributes profits to its owners the result is a(n): A Decrease in profits B Decrease in assets and owner's equity C Increase in owner's equity D Increase in assets The following information is reported for Manco Company for the month of March Determine net income A $(21,500) B $144,500 C $21,500 D $73,000 Which of the following is not one of the three major ways that a business can be organized? A Partnership B Sole Proprietorship C Corporation D Wholesaler Which of the following would not be an objective of an external user analyzing a company's financial statements? A Assessing the company's ability to pay its debts B Predicting the future profitability of the company 3 C Determining whether the company should drop an unprofitable product line D Understanding the financial position of the company One advantage of the corporate form of business over the other forms of business is: A Limited liability B Ease of formation C Separate taxation D Lower legal fees Which of the following is not a required element of the title on a financial statement? A The company's name B The reporting date or period C The name of the financial statement D The preparer's name Assets should originally be recorded at: A Market value B Replacement cost C Historical cost D Amount owed on the asset Companies which make products from raw inputs are known as: A Service Companies B Wholesalers C Retailers D Manufacturers If owners contribute $50,000 to start a new business what is the effect on the accounting equation? A Assets increase $50,000; no effect on liabilities; equity increases $50,000 B Assets decrease $50,000; liabilities decrease $50,000; no effect on equity 3 C Assets decrease $50,000; no effect on liabilities; equity decreases $50,000 D Assets increase $50,000; liabilities increase $50,000; no effect on equity Which of the following is not a merchandiser? A Target B Best Western C Staples D Macy's What is the effect on the accounting equation if a company earns revenues of $23,000 on account? A Assets increase $23,000; no effect on liabilities; equity increases $23,000 B Assets decrease $23,000; liabilities decrease $23,000; no effect on equity C Assets decrease $23,000; no effect on liabilities; equity decreases $23,000 D Assets increase $23,000; liabilities increase $23,000; no effect on equity A company reported total equity of $82,000 on its December 31, 2009 balance sheet The following information is available for the year ended December 31, 2010: What are the total assets of the company as of December 31, 2010? A $167,000 B $202,000 C $85,000 D $132,000 Boeing would be an example of what business type? A Service company B Merchandiser C Manufacturer D Retailer How would the accounting equation be affected if a company obtains a loan for $100,000 from a bank? A Assets increase $100,000; no effect on liabilities; equity increases $100,000 2 B Assets decrease $100,000; liabilities decrease $100,000; no effect on equity C Assets decrease $100,000; no effect on liabilities; equity decreases $100,000 D Assets increase $100,000; liabilities increase $100,000; no effect on equity The income statement reports: A Revenues, assets and expenses B Net income or loss for the period C Only sales amounts paid in cash D The financial position on a particular date True - False Questions If net income is equal to $10,000 then the company's cash has increased by $10,000 True False An accounting system is a system of financial recordkeeping True False Managerial accounting reports produced by the accounting system are made available for external users of accounting True False A business owned by one individual is known as a corporation True False A company's managers have the primary responsibility for following Generally Accepted Accounting Principles (GAAP) and for preparing fair financial statements True False One objective of external users of financial information is to assess the ability of a company to pay its liabilities True False A business that has one owner is a partnership True False Prepaid expenses are an example of an asset True False Companies which not make or sell goods are known as service companies True False The correct order to prepare the financial statements is: 1) Balance Sheet, 2) Income Statement, 3) Statement of Cash Flows, and 4) Statement of Owner's Equity True False Interest payable is an example of an expense True False Financial statements are only prepared at the end of the year True False The regulatory body responsible for setting the rules of accounting is the Financial Accounting Standards Board (FASB) True False Financial information that is unbiased and verifiable is said to be relevant True False One disadvantage of a sole proprietorship and a partnership is unlimited liability True False The high cost of computers has made it more difficult for business owners to their own bookkeeping True False One advantage of a corporation over the other forms of business is ease of formation True False An accountant who charges a fee to businesses for their services works in private accounting True False Expenses are resources used to earn revenue True False An owner has a claim to a business for the amounts invested in the business True False Wal-Mart is an example of a retailer True False Assets - Owner's Equity = Liabilities represents the fundamental accounting equation True False The balance sheet reports a company's financial position at a particular point in time True False The statement of owner's equity links together the income statement and the balance sheet True False Southwest Airlines would be an example of a manufacturer True False Resources a business owns are called revenues True False Creditors and investors are examples of external users of accounting information True False Accounts payable are claims a business owes to creditors True False A manager who is considering whether to continue or discontinue a particular product would refer to financial accounting information True False The difference between assets and liabilities is called profit True False ... 55 Free Test Bank for Principles of Accounting 1st Edition by Libby Multiple Choice Questions - Page Technology and the low cost of computers have resulted in: A Increased complexity in accounting. .. statement C Statement of cash Flows D Statement of owner's equity All of the following include activities of external users of accounting information except: A Evaluating the risk of lending money... American Institute of CPAs (AICPA) D Generally Accepted Accounting Principles (GAAP) Which of the following would not be considered an external user of accounting information? A Bank B Supplier