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Financial Accounting BY MtssstmpleK56 1 . Accounting is an information and measurement system that: A. Identifies business activities. B. Records business activities. C. Communicates business activities. D. Helps people make better decisions. E. All of these. 2. Technology A. Has replaced accounting. B. Has not changed the work that accountants do. C. Has closely linked accounting with consulting, planning, and other financial services. D. In accounting has replaced the need for decision makers. E. In accounting is only available to large corporations. 3. The primary objective of financial accounting is: A.
To serve the decision-making needs of internal users. B. To provide financial statements to help external users analyze an organization’s activities. C. To monitor and control company activities. D. To provide information on both the costs and benefits of looking after products and services. E. To know what, when, and how much to produce. 4. Internal users of accounting information include: A. Shareholders. B. Managers. C. Lenders. D. Suppliers. E. Customers. 5. The area of accounting aimed at serving the decision making needs of internal users is: A. Financial accounting. B.
Managerial accounting. C. External auditing. D. SEC reporting. E. Bookkeeping. 6. The operating functions of a business include: A. Research and development. B. Purchasing. C. Marketing. D. Distribution. / External users 0T accountlng InTormatlon Include: B. Customers. C. Creditors. D. Government regulators. 8. Career opportunities in accounting include: A. Auditing. B. Management consulting. C. Tax accounting. D. Cost accounting. 9. Career opportunities in accounting include: A. Budgeting. B. Auditing. C. Cost accounting. D. Internal Auditing. 10. Accounting certifications include the: A.
Certified Public Accountant. B. Certified Management Accountant. C. Certified Internal Auditor. D. Personal Financial Specialist 11. A Certified Public Accountant A. Must meet education and experience requirements B. Must pass an examination C. Must exhibit ethical character D. May also be a Certified Management Accountant. 12. Ethical behavior requires: A. That auditors’ pay not depend on the figures in the client’s reports. B. Auditors to invest in businesses they audit. C. Analysts to report information favorable to their companies. D. Managers to use accounting information to benefit themselves.
E. All of these. 13. Social responsibility: A. Is a concern for the impact of our actions on society. B. Is a code that helps in dealing with confidential information. C. Is required by the SEC. D. Requires that all businesses conduct social audits. A. Are beliefs that separate right from wrong. B. And law often coincide. C. Help to prevent conflicts of interest. D. Are critical in accounting. 15. The accounting guideline that requires financial statement information to be supported by independent, unbiased evidence other than someone’s belief or opinion is the: A.
Business entity principle. B. Monetary unit principle. C. Going-concern principle. D. Cost principle. E. Objectivity principle. 16. Businesses can take the following form(s): A. Sole proprietorship. B. Common stock. C. Partnership. D. A and C only. 17. A corporation: A. Is a business legally separate from its owners. B. Is controlled by the FASB. C. Has shareholders who have unlimited liability for the acts of the corporation. D. Is the same as a limited liability partnership. 18. The rules adopted by the accounting profession as guides in preparing financial statements are: A.
Comprised of both general and specific principles. B. Known as generally accepted accounting principles. C. Abbreviated as GAAP. D. Intended to make information in financial statements relevant, reliable, and omparable. E. All of these. 19. The accounting assumption that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the: A. Objectivity principle. B. Business entity assumption. C. Going-concern assumption. D. Revenue recognition principle. E. Cost principle. 20.
The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the: A. Going-concern principle. B. Business entity principle. C. Objectivity principle. D cost Principle. E. Monetary unit principle. 21 . Rules adopted by the accounting profession as guides in measuring, recording, and reporting the financial condition and activities ofa business: A. Are comprised of both general and specific principles. B. Are known as generally accepted accounting principles. C.
Are abbreviated as GAAP. D. Arise from both long-used practices and from rulings of authoritative groups. E. All of these. 22. If a parcel of land that was originally acquired for $85,000 is offered for sale at $1 50,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as asily being worth $140,000, and is sold for $137,000, the land should be recorded in the purchaser’s books at: A. $95,000. B. $137,000. c. $138,500. D. $140,000. E. $150,000. 23. To include the personal assets and transactions of a business’s owner in the records and reports of the business would be in conflict with the: A.
Objectivity principle. B. Realization principle. C. Business entity principle. D. Going-concern principle. E. Revenue recognition principle. 24. The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or ash-equivalent amount given in exchange, is the: A. Accounting equation. B. Cost principle. D. Realization principle. E. Business entity principle. 25. Generally accepted accounting principles: A. Are based on long used accounting practices. B.
Are basic assumptions, concepts, and guidelines in preparing financial statements. C. Are detailed rules used in reporting on business transactions and events. D. Arise from the rulings of authoritative bodies. 26. The objectivity principle: A. Means that information is supported by independent, unbiased evidence. B. Means that information can be based on what the preparer thinks is true. C. Means that financial statements should contain information that is optimistic. D. Means that a business may not reorganize revenue until cash is received. E. All of 27.
The rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash, and (3) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services, is called the: A. Going-concern principle. C. Revenue recognition principle. D. Objectivity principle. E. Business entity principle 28. The Maximum Experience Company acquired a building for $500,000. Maximum Experience had the building appraised, and found that the building was easily worth $575,000.
The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Maximum Experience use to record the building on its records at $500,000? A. Monetary unit principle B. Going-concern principle C. Cost principle D. Business entity principle E. Revenue recognition principle 29. On December 15, 2007, Myers Legal Services signed a $50,000 contract with a client to provide legal services to the client in 2008. Which accounting principle ould require Myers Legal Services to record the legal fees revenue in 2008 and not 2007? A. Monetary unit principle 30.
Marian Mosely is the owner of Mosely Accounting Services. Which accounting principle requires Marian to keep her personal financial information separate from the financial information of Mosely Accounting Services? A. Monetary unit principle E. None of these. Since Marian is a sole proprietor, she is not required to separate her personal financial information from the financial information of Mosely Accounting Services. 31 . A limited partnership: A. Includes a general partner with unlimited liability. B. Is subject to double taxation. C. Has owners called stockholders. D. Is the same as a corporation. E. May only have two partners. 2. A partnership: A. Is also called a sole proprletorsnlp. B. Has unlimited liability. C. Has to have a written agreement in order to be legal. D. Is a legal organization separate from its owners. E. Has owners called shareholders. 33. According to generally accepted accounting principles, a company’s balance sheet should show the company’s assets at: A. The cash equivalent value of what was given up or received. B. The current market value of the asset received in all cases. C. The cash paid only, even if something other than cash was given in the exchange. D. The best estimate of a certified internal auditor.
E. The objective value to external users. 34. If a business is not being sold or closed, the amounts reported in the accounts for assets used in operations are based on costs. This practice is best Justified by the: A. Cost principle. B. Going-concern principle. D. Business entity principle. E. Both A and B. 35. Which of the following accounting principles would require that all goods and services purchased be recorded at cost? A. Going-concern principle. B. Continuing-concern principle. C. Cost principle. E. Consideration principle. 36. Revenue is properly recognized: A. When the customer’s order is received.
B. Only if the transaction creates an account receivable. C. At the end of the accounting period. D. Upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price. E. When cash from a sale is received. 37. If a parcel of land that was originally purchased for $85,000 is offered for sale at easily being worth $140,000, and is sold for $137,000, the land account transaction amount to handle the sale of the land in the seller’s books is: A. $85,000 increase B. $85,000 decrease C. $137,000 increase D. $137,000 decrease E. None of these 38.
If a parcel of land that was originally purchased for $85,000 is offered for sale at easily being worth $140,000, and is sold for $137,000. What is the effect of the sale on the accounting equation for the seller? A. Assets increase $52,000; owner’s equity Increases S B. Assets Increase SB5,UUU; owners equlty Increases S C. Assets increase $137,000; owner’s equity increases $137,000 D. Assets increase $140,000; owner’s equity increases $140,000 E. None of these $137,000 – $85,000 = $52,000 39. If a parcel of land that was originally purchased for $85,000 is offered for sale at asily being worth $140,000, and is sold for $137,000.
At the time of the sale, assume that the seller still owed $30,000 to TrustOne Bank on the land that was purchased for $85,000. Immediately after the sale, the seller paid off the loan to TrustOne Bank. What is the effect of the sale and the payoff of the loan on the accounting equation? A. Assets increase $52,000; owner’s equity increases $22,000; liabilities decrease $30,000 B. Assets increase $52,000; owner’s equity increases $30,000; liabilities decrease $30,000 C. Assets increase $22,000; owner’s equity increases $52,000; liabilities decrease $30,000 D.
Assets decrease $30,000; owner’s equity decreases $30,000; liabilities decrease $30,000 E. Assets decrease $55,000; owner’s equity decreases $55,000; liabilities decrease $30,000 $137,000 – $85,000 – 30,000 = 22,000 40. An example of a financing activity is: A. Buying office supplies. B. Obtaining a long-term loan. C. Buying office equipment. D. Selling inventory. E. Buying land. 41 . An example of an operating activity is: A. Paying wages. B. Purchasing office equipment. C. Borrowing money from a bank. D. Selling stock. E. Paying offa loan. 42. Planning activities: A. Are the means organizations use to pay for resources.
B. Involve the acquiring and disposing of resources that an organization uses to acquire and sell its products or services. C. Involve defining the ideas, goals, and actions of an organization. D. Are the carrying out of an organization’s plans. E. Involve using resources to research, develop, purchase, produce, and market products and services. 43. Operating activities: A. Are the means organizations use to pay for resources like land, buildings and equipment. B. Involve using resources to research, develop, purchase, produce, distribute and market products and services. C.
Involve acquiring and disposing of esources that a business uses to acquire and sell its products or services. D. Are also called asset management. E. Are also called strategic management. 44. The major activities of a business include: A. Operating. B. Financing. C. Investing. D. All 0T tnese. 45. An example of an investing activity is: A. Paying wages of employees. B. Withdrawals by the owner. C. Purchase of land. E. Contribution from owner. 46. Net Income: A. Decreases equity. B. Represents the amount of assets owners put into a business. C. Equals assets minus liabilities. D. Is the excess of revenues over expenses. E.
Represents owners’ claims against assets. 7. If equity is $300,000 and liabilities are $192,000, then assets equal: A. $108,000. B. $192,000. c. $300,000. D. $492,000. E. $792,000. Assets = $192,000 + $300,000 = $492,000 48. Resources owned or controlled by a company that are expected to yield future benefits are: A. Assets. B. Revenues. C. Liabilities. D. Owner’s Equity. E. Expenses. 49. Gross increases in equity from a company’s earnings activities are: A. Assets. 50. Net income is: A. Assets minus liabilities. B. The excess of revenues over expenses. C. An asset. D. The same as revenue. E. The excess of expenses over equity. 51 .
The difference between a company’s assets and its liabilities, or net assets is: A. Net income. B. Expense. C. Equity. D. Revenue. E. Net loss. 52. Creditors’ claims on the assets of a company are called: A. Net losses. B Expenses. C. Revenues. D. Equity. E. Liabilities. 53. Decreases in equity that represent costs of assets or services used to earn revenues are called: A. Liabilities. B. Equity. C. Withdrawals. D. Expenses. E. Owner’s Investment. 54. The description of the relation between a company’s assets, liabilities, and equity, which is expressed as Assets = Liabilities + Equity, is known as the: A. Income statement equation.
B. Accounting equation. C. Business equation. D. Return on equity ratio. E. Net income. 55. Assets = Liabilities + Equity is known as the: A. Income statement equation. D. Accounting equation. E. Transaction principle. 56. Expenses: A. Increase equity. B. Are gross increases in equity from a company’s earning activity. C. Are the costs of assets or services used to earn revenues. D. Occur when equity exceeds revenue. E. Are creditors claims on assets. 57. Net income: A. Occurs when revenues exceed expenses. B. Is the same as revenue. C. Equals resources owned or controlled by a company. D. Occurs when expenses exceed assets. E.
Represents assets taken from a company for an owner’s personal use. 58. Revenues are: A. The same as net income. B. The excess of expenses over assets. C. Resources owned or controlled by a company D. The gross increase in equity from a company’s earning activities. E. The costs of assets or services used. 59. Accounting A. Is an information and measurement system. B. Identifies, records, and communicates information about business activities C. Helps people make better decisions D. Involves Interpretlng InTormatlon ana aeslgnlng InTormatlon systems to prov10e useful reports that monitor and control a company’s activities. E. All of these 0.
If assets are $99,000 and liabilities are $32,000, then equity equals: A. $32,000. B. $67,000. c. $99,000. D. $131,000. E. $198,000. Equity = $99,000 – $32,000 = $67,000 61 . Another name for equity is: B. Expenses. C. Net assets. 62. The excess of expenses over revenues for a period is: A. Net assets. C. Net loss. D. Net income. E. A liability. 63. Which of the following statements is true about assets? A. They are economic resources owned or controlled by the business. B. They are expected to provide future benefits to the business. C. They appear on the balance sheet. D. Claims on them can be shared between creditors and owners.
E. All of these. 64. A payment to an owner is called a(n): A. Liability. B. Withdrawal. C. Expense. D. Contribution. E. Investment. 65. Distributions by a business to its owners are called: A. Withdrawals. C. Assets. D. Retained earnings. E. Net Income. 66. The balance sheet equation is: A. Revenues minus expenses equals net income. B. Debits equal credits. C. The bookkeeping phase of accounting. D. Another name for the accounting equation. E. Assets minus liabilities and equity. 67. The assets of a company total $700,000; the liabilities, $200,000. What are the claims of the owners? A. $900,000.