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166 Test Bank for Financial Accounting 9th Edition Harrison True False Questions - Free Text Questions - Mutiple Choice Questions - Page All of the following are true statements about the entity assumption EXCEPT for: A) the entity assumption draws a sharp boundary around each entity B) the transactions of the business cannot be mingled with the transactions of the owner C) the entity assumption ensures that the business will continue indefinitely D) under the entity assumption, the entity is any organization that stands apart as a separate economic unit An entity that is organized according to state law and in which ownership units are called stock is a: A) proprietorship B) corporation C) partnership D) limited liability company The assets of a company: A) must equal the liabilities of the company B) include property, plant, and equipment and common stock C) represent economic resources that are expected to produce a future benefit D) include merchandise inventory and accounts payable The relevant measure of the value of the assets of a company that is going out of business is the: A) book value B) current fair market value C) historical cost D) recorded value 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 A) Verifiability B) Timeliness C) Understandability D) Comparability Another way to state the accounting equation is: A) Assets = Liabilities + Paid-in Capital - Common Stock B) Assets = Liabilities + Retained Earnings C) Assets = Liabilities + Paid-in Capital + Retained Earnings D) Assets = Liabilities - Paid-in Capital - Dividends The two types of accounting are: A) profit and nonprofit B) financial and managerial C) internal and external D) bookkeeping and decision-oriented The is elected by the stockholders and is responsible for setting policy and appointing officers A) board of directors B) chief executive officer (CEO) C) chief financial officer (CFO) D) advisory council The acronym GAAP stands for: A) generally acceptable authorized pronouncements B) government authorized accountant principles C) generally accepted accounting principles D) government audited accounting pronouncements 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? A) $80,000 B) $83,000 C) $85,000 D) $90,000 The accounting equation can be stated as: A) Assets + Stockholders' Equity = Liabilities B) Assets -Liabilities = Stockholders' Equity C) Assets = Liabilities - Stockholders' Equity D) Assets - Stockholders' Equity + Liabilities = Zero Verifiability means that the information: A) is timely B) is understandable C) must be capable of being checked for accuracy D) is material and relevant The stable-monetary-unit assumption: A) ensures that accounting records and statements are based on the most reliable data available B) holds that the entity will remain in operation for the foreseeable future C) maintains that each organization or section of an organization stands apart from other organizations and individuals D) enables accountants to ignore the effect of inflation in the accounting records The principle stating that assets acquired by the business should be recorded at their actual cost on the date of purchase is the: A) historical cost principle B) objectivity principle C) reliability principle D) stable dollar principle The Financial Accounting Standards Board is responsible for establishing: A) the code of professional conduct for accountants B) the Securities and Exchange Commission C) generally accepted accounting principles D) international accounting financial standards Accounting: A) measures business activities B) processes data into reports and communicates the data to decision makers C) is often called the language of business D) is all of the above Regarding financial statement elements: A) assets must provide immediate benefits to the company B) stockholders' equity represents the "outsider claims" to the assets C) merchandise inventory and dividends are assets of a company D) revenues are inflows of resources that increase retained earnings In which form of business ownership are the owners of a business legally distinct from the business? A) Corporation B) Partnership C) Proprietorship D) All of the above Owners of an LLC are called: A) partners B) sole proprietors C) members D) stockholders An important fact to consider when determining how to organize a business is that: A) members of an LLC have unlimited liability and are taxed like members of a partnership B) for accounting purposes, a proprietorship is a distinct entity C) the records of a partnership can include the partner's personal finances D) the proprietor and the proprietorship are separate legal entities When preparing accounting information, understand that: A) the auditors are primarily responsible for preparing the information B) the cost of disclosure should not exceed the expected benefits to the users C) accounting information can be produced quickly and inexpensively D) all information must be disclosed for a complete understanding of the underlying economic facts 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? A) Only the vacation home in Hawaii B) Only the factory in Detroit C) Both the vacation home in Hawaii and the factory in Detroit D) Neither the vacation home in Hawaii nor the factory in Detroit Shareholders of a corporation: A) receive one vote for each share of stock they own B) have unlimited liability C) have mutual agency D) receive dividends from the corporation without having to pay tax on the distribution The accounting assumption that states that the business, rather than its owners, is the reporting unit is the: A) entity assumption B) going concern assumption C) stable-monetary-unit assumption D) historical cost assumption Advantages of a corporation include: A) a single owner B) the double taxation of distributed profits C) limited liability of the stockholders D) mutual agency When dealing with the elements of the financial statements, it is important to consider that: A) the current portion of long-term debt is the amount due within the next year and must be disclosed separately B) fixed assets are short-term assets the company plans on selling in the near future C) cost of goods sold is a component of paid-in capital D) retained earnings is a long-term liability account Examples of liabilities include: A) accounts payable and accounts receivable B) accounts payable and land C) investments and owners' equity D) accounts payable and long-term debt Liabilities are: A) a form of paid-in capital B) future economic benefits to which a company is entitled C) debts payable to outsiders called creditors D) the outflow of resources that decrease common stock An entity that must pay its own income taxes is: A) proprietorship B) partnership C) limited-liability company D) corporation If a company prepares its financial statements three years after the end of their accounting period, they have violated the qualitative characteristic of : A) understandability B) timeliness C) verifiability D) full disclosure An important fact to remember when studying GAAP and IFRS is: A) if the U.S adopts IFRS, the accounting information being taught currently will all be outdated B) there is no difference in way information is arranged on the balance sheet and income statement if IFRS is adopted C) newly issued U.S accounting standards have conformed U.S practices to IFRS D) there is no terminology difference between GAAP and IFRS The owners' equity of any business is its: A) revenues minus expenses B) assets minus liabilities C) assets plus liabilities D) paid-in capital plus assets Decision makers who use accounting include: A) the SEC B) investors C) managers 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? A) Proprietorship B) Partnership C) Limited-liability company D) Corporation Which of the following is a correct statement about GAAP and IFRS? A) IFRS prefers valuing assets at historical cost while GAAP prefers using fair value B) IFRS is more "rules-based" than GAAP C) The FASB and the IASB are working towards convergence of standards D) The SEC will require all companies to use IFRS beginning in 2013 Historical cost: A) is determined for each asset on a yearly basis B) is equal to the amount of cash paid less the dollar value of all non-cash consideration given in the exchange C) is a verifiable measure that is relatively free from bias D) is the amount that the business could sell the asset for Which of the following is a true statement about the characteristics of partnerships? A) In a limited-liability partnership, a wayward partner can create a large liability for the other partners B) General partners have mutual agency and limited liability C) Income and loss of the partnership "flows through" to the partners D) The partnership agreement must be in writing The type of accounting that makes projections to determine if a company should build a new store is: A) financial accounting B) business accounting C) managerial accounting D) projection accounting To be useful, accounting information must have the fundamental qualitative characteristics of: A) comparability and relevance B) relevance and faithful representation C) materiality and understandability D) faithful representation and timeliness 111 Free Test Bank for Financial Accounting 9th Edition by Harrison Mutiple Choice Questions - Page Which financial statement is dated at the moment in time when the accounting period ends? A) Balance sheet B) Income statement C) Statement of retained earnings and income statement D) Statement of cash flows 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? A) Decrease of $15,000 B) Increase of $15,000 C) Increase of $30,000 D) Decrease of $30,000 Net income is computed as: A) revenues - expenses - dividends B) revenues + expenses C) revenues - expenses D) revenues - expenses + dividends Dividends: A) are paid by a business to shareholders as compensation for services B) affect net income C) are distributions to stockholders of assets (usually cash) generated by net income D) are distributions to stockholders of assets (usually cash) generated by a favorable balance in retained earnings Receivables are classified as: A) increases in earnings B) decreases in earnings C) liabilities D) assets Cash dividends: A) decrease revenue on the income statement B) decrease retained earnings on the statement of retained earnings When looking at the current assets section of a company's balance sheet: A) cash equivalents are considered short-term investments B) short-term investments include stocks and bonds of other companies that the company intends to sell within the next year C) merchandise inventory is considered a prepaid expense D) accounts payable are amounts the company expects to collect from customers within the next year Which is the correct order for items to appear on the income statement? A) Revenues, income from operations, gross profit B) Income before income taxes, operating expenses, gross profit C) Revenues, net income, operating expenses D) Gross profit, income from operations, net income Current assets are assets expected to be converted to cash, sold, or consumed within the next: A) 12 months or within the business's normal operating cycle if longer than a year B) 12 months or within the business's normal operating cycle if less than a year C) months D) 24 months A net loss occurs when: A) not enough cash exists B) total revenues exceed total expenses C) total expenses exceed total revenues D) total revenues and dividends exceed total expenses Retained earnings appears on which of the following financial statements? A) Statement of retained earnings, statement of cash flows, and balance sheet B) Statement of retained earnings and statement of cash flows C) Statement of retained earnings and income statement D) Statement of retained earnings and balance sheet An evaluation of the income statement can answer the question: A) What are the main income measures to watch for trends? B) Does the company have any intangible assets? C) Does the company have adequate inventory? D) What has the company decided to with its excess cash? Notes payable (due in 60 days) would appear on the balance sheet as a: A) current liability B) current asset C) long-term asset D) long-term liability With the statement of cash flows: A) cash payments are considered positive amounts B) each category of cash flows either increases or decreases cash C) operating activities must increase the company's cash balance D) the beginning cash balance is reconciled to the ending balance of retained earnings Which financial statement must be prepared before the others? A) Statement of cash flows B) Income statement C) Balance sheet D) Statement of retained earnings Stockholders' equity consists of: A) additional paid-in capital, which is equal to the par value of the stock B) treasury stock, which represents stock of another corporation that the company has purchased C) accumulated other comprehensive income, which represents items of gain or loss that bypass the income statement D) common stock, which is recorded at its market value The balance sheet contains the: A) amount of net income or net loss B) beginning balance in retained earnings C) ending balance in retained earnings D) amount of cash dividends paid to stockholders Equipment would appear on the: A) balance sheet with the long-term assets B) income statement with the revenues C) income statement with the operating expenses D) balance sheet with the current assets Which of the following would be considered a financing activity that decreases cash? A) The company pays a long-term loan B) The company sells common stock C) The company purchases a building D) The company pays its monthly utility bill The portion of net income that the company has kept over a period of years is called: A) common stock B) retained earnings C) revenue D) gross profit What is the proper order for the categories of the statement of cash flows? A) Financing activities, investing activities, and operating activities B) Operating activities, investing activities, and financing activities C) Operating activities, financing activities, and investing activities D) Investing activities, financing activities, and operating activities The balance sheet reports information about: A) revenues, expenses, and equity B) liabilities, equity, and expenses C) assets, revenues, and liabilities D) assets, liabilities, and owners' equity The most liquid of current assets, in order, are: A) accounts receivable, inventory, cash and cash equivalents B) cash and cash equivalents, accounts receivable, marketable securities C) cash and cash equivalents, marketable securities, accounts receivable D) marketable securities, cash and cash equivalents, accounts receivable A company's balance sheet: A) is dated for a period of time B) has three main categories of assets C) has two main categories of liabilities D) lists liabilities before assets The factor recognizes that while certain actions might be both economically profitable and legal, they still may not be right A) economic B) legal C) profitability D) ethical When classifying assets on the balance sheet: A) accounts receivable are reported at their net amount B) accounts receivable are amounts a company expects to collect from a party who has signed a promissory note to the company C) prepaid expenses are considered long-term assets D) money-market accounts are prepaid expenses The net income shown on the income statement also appears on the: A) balance sheet and operations statement B) statement of assets C) statement of financial position D) statement of retained earnings Under what category would cash collected from customers appear on the statement of cash flows? A) As an operating activity B) As a financing activity C) As an investing activity D) As both an investing and financing activity When a company is purchasing long-term assets, this is a sign of growth This information can be obtained by examining: A) the equity section of the balance sheet B) the revenues section of the income statement C) the investing cash flows section of the statement of cash flows D) the net income section of the statement of retained earnings The decision framework for making ethical judgments does NOT consider the following question? A) What is the issue? B) What are the alternatives? C) What alternative maximizes profit? D) Who are the stakeholders? Liabilities are divided into two categories: A) current and payable B) current and future C) accounts payable and long-term D) current and long-term True - False Questions The business records of a sole proprietorship should include the proprietor's personal finances True False The accounting process begins and ends with people making decisions True False The SEC sets international financial reporting standards True False A partnership is formed under state law True False The Candy Company had beginning retained earnings of $5,000, net income of $3,000, and paid dividends of $1,000 to their stockholders Therefore, the ending retained Earnings is $7,000 True False All business owners are personally liable for the debts of their businesses True False Expenses are increases in retained earnings that result from operations True False Since we live in a global economy, all countries have adopted the same accounting standards for business transactions True False Cost is a verifiable measure that is relatively free from bias True False Information that is material must be separately disclosed in the financial statements True False The stable monetary unit concept means that the type of currency used for the financial statements is NOT expected to change True False A balance sheet reports the company's financial position at a specific point in time True False The accounting equation shows the relationship among assets, liabilities and net income True False The accounting equation expresses the idea that Resources Insider claims = Outsider claims True False Bookkeeping is the mechanical part of accounting True False The fundamental qualitative characteristics of accounting are relevance and materiality True False Long-term debt is a liability that is payable beyond one year from the date of the financial statements True False Stockholders' equity is the stockholders' interest in the assets of the corporation True False The calculation of ending retained earnings considers beginning retained earnings, current net income or net loss, and dividends True False The amount of cash received on the sale of the company's stock in excess of par value is called retained earnings True False All financial statements are as of a specific date True False Good business requires decision making, which in turn requires the exercise of good judgment, both at the individual and corporate level True False Accounting produces financial statements, which report information about a business entity True False The income statement is also called the Statement of financial position True False The two main components of stockholders' equity are paid-in capital and retained earnings True False Accounting is moving in the direction of reporting more and more assets and liabilities at their fair values True False Claims to assets must come from outsiders True False All corporations must use the calendar year as its accounting year True False Accounting is often called the language of business True False The statement of cash flows is organized in terms of the organization's operating, investing, and financing activities True False Generally accepted accounting principles, or GAAP, are the rules and procedures established by the Financial Accounting Standards Board, or the FASB True False Accrued expenses are a current asset True False Net income is the profit left over after subtracting expenses and losses from revenues and gains True False The basic component of paid-in capital is common stock True False The word "payable" always signifies a liability True False Owners' equity is called stockholders' equity for a corporation True False Mutual agency of a partnership means that each partner may conduct business in the name of the partnership and can legally bind all the partners without limit for the partnership's debts True False A company whose net income from operations is consistently increasing is regarded as a healthy, high-quality company True False A corporation must pay dividends every year True False Under current accounting rules, the carrying value of a building can be increased to its fair value True False Nonprofit organizations not use accounting information since they are not concerned about making a profit True False Another name for the continuity assumption is the goingconcern assumption True False Accounting is an information system that measures business activities True False Financial accounting provides budgeting information to a company's managers True False The income statement measures operating performance True False Elements are the building blocks of the financial statements True False Dividends are distributions to the stockholders and represent an expense of the business True False The accounting equation must always be in balance True False Delta Company has total assets of $400,000 and total liabilities of $180,000, Delta's equity must therefore be $$580,000 True False Accounting information is used by investors and creditors, but not by individuals True False Free Text Questions ABC Company had the following transactions during the year: ABC recently purchased a building that was listed by the realtor for a price of $275,000 ABC paid $250,000 for the building and recorded it on their books for $250,000.For each transaction above, indicate which of the following concepts, principles or assumptions was violated (note that an answer may be used more than once): Historical cost principle; Understandability; Entity assumption; Going-concern assumption; Stable-monetary-unit assumption; Answer Given Historical cost principle ABC Company had the following transactions during the year: The president of ABC Company borrowed $30,000 from the bank to remodel his yacht ABC put the loan on their books.For each transaction above, indicate which of the following concepts, principles or assumptions was violated (note that an answer may be used more than once): Historical cost principle; Understandability; Entity assumption; Going-concern assumption; Stablemonetary-unit assumption; Timeliness Answer Given Entity assumption ABC Company had the following transactions during the year: ABC Company was involved in an very complex accounting transaction that they did not want the bank to know about They decided to make the description of the transaction extremely complex so that no one would realize what the transaction was about.For each transaction above, indicate which of the following concepts, principles or assumptions was violated (note that an answer may be used more than once): Historical cost principle; Understandability; Answer Given Understandability ABC Company had the following transactions during the year: ABC Company determined that land that they purchased several years ago for $100,000 had a current fair market value of $140,000 To make the financial statements look better, they increased the carrying value of the land to $140,000.For each transaction above, indicate which of the following concepts, principles or assumptions was violated (note that an answer may be used more than once): Historical cost principle; Understandability; Entity assumpt Answer Given Historical cost principle ABC Company had the following transactions during the year: ABC Company delayed issuing its financial statements because the accountant was on vacation For each transaction above, indicate which of the following concepts, principles or assumptions was violated (note that an answer may be used more than once): Historical cost principle; Understandability; Entity assumption; Going-concern assumption; Stable-monetary-unit assumption; Timeliness Answer Given Timeliness ... timeliness 111 Free Test Bank for Financial Accounting 9th Edition by Harrison Mutiple Choice Questions - Page Which financial statement is dated at the moment in time when the accounting period... separately C) use a single heading for their equity account called Capital D) not have equity accounts 111 Free Test Bank for Financial Accounting 9th Edition by Harrison Mutiple Choice Questions... type of accounting that makes projections to determine if a company should build a new store is: A) financial accounting B) business accounting C) managerial accounting D) projection accounting